THE ROLES OF THE CENTRAL BANK IN STABILIZING A DEPRESSED ECONOMY (THE NIGERIAN EXPERIENCE)

Description

ABSTRACT

This study on the role of Central Bank in stabilizing a depressed economy was designed with the objectives of ascertaining if the Central Bank of Nigeria is achieving involved in the stabilization of Nigeria economy, to determine if Central bank of Nigeria has control measures over the management of money market and capital market to identify the role of central bank of Nigeria in the formation and implementation of the country and to recommend appropriate measures for improved quality contribution by the Central Bank of Nigeria for the country.

The Central bank is an important institution to a depressed economy like Nigeria, the financial trade and policies formulate and implemented by the Central bank are very important.

Infact if could be regarded as a pillar to the survival of the national economic development without which the economy will be in shamble.

In carrying out a research the research, secondary and primary data was collected and used accordingly. Related literature  were reviewed and questionnaires were prepared, distributed and analysed. The use of chi-square technique was used in analyzing the primary data. The findings of the research were reached. Following the findings, appropriate recommendation was stated in order for Central Bank to bring a stable economy should encourage good decisive policy and conclusion was reached hoping that this work will enable the role of Central Bank of Nigeria to be more appreciative.

TABLE OF CONTENT

Title Page                                                                       II

Approval page                                                               III

Dedication                                                                     IV

Acknowledgement                                                         V

Abstract                                                                         VII

Table of content                                                             IX

CHAPTER ONE: INTRODUCTION

• Introduction           1
• Statement of the problem 2
• Purpose of the study 3
• Research hypothesis 3
• Significance of the study 5
• Scope and limitation of the study 5
• Definition of terms 6

CHAPTER TWO: REVIEW OF RELATED LITERATURE

• Introduction 10
• Definition 12
• Central Bank of Nigeria and its objectives 16
• Functions of Central Bank of Nigeria 19
• Monetary policy meaning and objectives 22
• Instruments used by Central Bank of Nigeria in stabilizing Nigeria                                                           33
• The roles of Central Bank of Nigeria in stabilizing Nigeria                                                 39
• Problems faced by Central Bank of Nigeria in stabilizing Nigeria                                                           48

CHAPTER THREE: RESEARCH DESIGN AND METHODOLOGY

• Study area 52
• Sources of data 53
• Methods of investigation. 55

CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS OF DATA

• Persecution and analysis of the questionnaire 58
• Test of hypothesis 69

CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS

• Findings                                                            78
• Conclusion                                                 79
• Recommendations 80

BIBLIOGRAPHY                                                          83

APPENDIX                                                          85

CHAPTER ONE

• INTRODUCTION

The objectives of establishing central bank of Nigeria were to serve as banker to the banking systems, to perform supervisory role over the commercial banks and issue currency thus requiting the supply of money in the country. It also acts as financial adviser to the government on monetary policy and implementing the policy on behalf of the government, it involves issuing legal trader currency, maintaining the value of the domestic currency enhancing mobilization of fund.

The Central Bank of Nigeria is government bank, established to keep a country’s financial system under control and these supervision.

The Central Bank of Nigeria is expected particularly in promoting economic growth by fostering the developing of money market and capital market, develop banking habits and sound financial system. In order to facilitate economic development, CBN tends to engage in activities, which extend beyond its traditional functions. In this regard, it played a unique role in the development of Nigeria economy; particularly in promoting agricultural and industrial development in general.

The Central Bank of Nigerian was established to act as the organ of government that should undertake the major financial operation of the government and by it’s conduct influence the behaviour of financial institutions so as to support the economic policy of the government. The CBN carries out this responsibility on behalf of the federal government through a process outlined in the Central bank of Nigeria decree 24, 1991 and the banks and other financial institution in formulating monetary policy.

In fact the roles played by CBN in stabilizing Nigeria economy is an enormous one. Since its inception in 1958, it had engaged in one stabilizing role or the other.

1.2     STATEMENT OF THE PROBLEM

The governments of the Nigerian economy has over the years witnessed serious macro – economic activities, low capacity utilization, growth unemployment heavy debt burden, acceleration inflation intensified exchange rate depreciation as well as high and perversed regime of interest rate, financing has been intensified as a major factor in the observed macro-economic problems. For stability calls for CBN intervention, to ensue confidence in the financial systems.

1.3     PURPOSE OF THE STUDY

          This project is mainly concerned with the objective of                        

1. Ascertaining if CBN is actually involved in the stabilization of Nigeria
2. To find out if CBN has control measures over money market and capital market.

• To identify the instrument used by CBN and it’s effectiveness in stabilizing the economy.

1. To find out whether the CBN in encountering any problem is it’s effort to ensure stability in the economy.

1.4     RESEARCH HYPOTHESIS 

          in order to form a base for forming an opinion at the conclusion of this work the following statement of hypothesis is formed.

Ho:    Central Bank of Nigeria is not involved in the stabilization of the economy.

Hi:     Central Bank of Nigeria is involved in the stabilization of the economy.

Ho:    Central bank of Nigeria has no control measure over the management of money market and capital market.

Hi:     Central bank of Nigeria has control measure over the management of money market and capital market.

Ho:    The instrument used by Central Bank of Nigeria has not been effective in stabilizing the economy.

Hi:     The instrument used by Central Bank of Nigeria has been effective in stabilizing the economy.

Ho:    Central Bank of Nigeria is not encountering any problem in its effort to stabilize the economy.

Hi:     Central Bank of Nigeria is encountering any problem in its effort to stabilize the economy.

1.5     SIGNIFICANCE OF THE STUDY

The benefits to be derived from this empirical study cannot be over emphasized. The research work is aimed at offering an insight into the roles of Central bank of Nigeria in stabilizing the economy it will reveal the adequacy or otherwise of the efforts.

Such results would be used by the apse bank in re-designing an appropriate strategy in its stabilization efforts. It will also be a source information for education and researcher.

This work is also fashioned, to be of immense benefits to the entire society to research students, financial journalist and potential investors and indeed the unemployed all stands to benefit from this work.

1.6     SCOPE AND LIMITATION OF THE STUDY 

1. A) Scope

This study centres on the role of central bank in stabilizing a depressed economy. The role, functions and objectives of CBN will be examined. Moreover, the problems the CBN encounters in stabilizing the economy and likely solution will be per fared in this view, the role of Central Bank will be examined from it’s inception in 1970 – 2002.

1. B) Limitation

It is not easy to carry out his research work due to the death of data as per the problem under study and huge financial burden, also some respondents interviews show apathy in responding to the questions asked. It was this limiting factor retarding the concerned scope of this project. However these limitation not withstanding it, must be asserted that satisfactory efforts were made to ensure that the research was conducted under conditions that created room for scientific valid conclusions.

1.7     DEFINITION OF TERMS

1. a) Afem: Autonomous foreign exchange market. This is a price directed allocation system, which helps in eliminating the existence of financial dualisms in the foreign exchange from official to black market.
2. b) Balance of payment: Where there is a trade, there must be payment either now or later, it is the record of all financial and economic transactions between one country and the rest of the would over a given period of time. It is a record, it could be surplus or deficit.
3. c) Depressed economic: This is characterized by high and increasing unemployment, falling prices and adverse expectation.
4. d) Deregulation: it implies allowing economic agents and factors of production to respond to market. Forces, the underlying philosophy of the deregulation of the economy is the belief that the factor of production, goods and services are optionally priced and allocated when their prices are freely determined in a competitive environment.
5. e) Direct monetary policy: This is the use of bank credit on banks, sartorial allocation of bank credit, interest rate policy and so on, influencing the cost and availability of credits.
6. f) Fiscal policy: The use of government expenditure and taxes to influence the level of aggregate economic activity.
7. g) Ifem: inter banking foreign exchange market. It is a market established by law for buying and selling of foreign currencies at the market determine prices or rates.
8. h) Indirect monetary policy: It involved the use of reserve requirement, open market operation (OMO), discount rates, legal rtio and stabilization securities, in the financial market to control the cost and availability of credit. In this approach to monetary control, the permissible aggregate credit would continue to be determined by the CBN but mainly for monitoring purpose. It is a measure taken by the monetary authorities to control the cost quantity, the direction of credit to achieve national objectives with effect from September 1^st 1992, CBN shifted from direct to indirect monetary control.
9. i) Inflation: This is a period of general rise in prices of good and services. It is a situation where too much money in circulation chases few goods.
10. j) Micro – economic variables: These among the objective of government formulating monetary policy through CBN such variables as full employment, stability of prices, inflation and so on.
11. k) Monetary policy: This is the policy employed by CBN in controlling the supply of money as an instrument for achieving the objective of general economic policy.
12. I) Capital market: It is a market for long term capital. It supplies investors with opportunity to borrow and lend money on medium and long terms cases.
13. M) Share capital: These are shares of the bank held by government institutional investors and the individuals. The shares are issued on nominal values.       
14. n) Money market: This refers to an arrangement whereby borrowers and lenders of money on short-term basis are brought into contractual relationship. Money market as a collection name for the various firms and institutions that deal with short term debt obligations.