1.1 BACKGROUND OF THE STUDY
The role of the central bank in promoting national economic policy and development has in recent years become a topical international economic policy issue. Although the empirical evidence on the relationship between central bank operations and macroeconomic stability proxied by price stability is not conclusive (Folawewo and Osinubi, 2006), the prevailing wisdom supports the need to accord a central bank a reasonable degree of autonomy that will give it substantial discretion to conduct its monetary policy in a manner that will help achieve its assumed central mandate of maintaining domestic price stability, defined as a regime of relatively low inflation rate and an environment free of inflation expectations. While monetary policy’s aim at long-run price stability is critical to fostering sustainable economic growth, central banks’ role in promoting growth and, more generally, a healthy economy goes beyond the conduct of monetary policy (Sanusi 2002). Through involvement in financial regulation and supervision, as well as in the oversight of payments system operations, central banks play a key role in preserving and enhancing the safety and soundness of the banking and financial system (Alicia and Rio 2003) The Central Bank of Nigeria (CBN), like most central banks in the developing economies, undertakes some non-traditional central bank functions such as promotion of economic development, especially during the formative years in the 1960s and 1970s. The contribution of the CBN in this regard, was focused on the creation of the financial environment and institutional framework conducive to the mobilization and channeling of financial resources into productive investment. Thus, during the first decade of its establishment, the Bank concentrated on the task of promoting and transformation of the rudimentary financial structure of the economy. These included the issuance of money and capital market securities such as the Nigerian Treasury Bills and Federal Government Development Stocks. Moreover, it provided technical assistance to other relevant institutions, and start-up capital for the development of money and capital market institutions. The CBN initiative to encourage long-term bank lending to the economy included the establishment of various refinance and guarantee schemes, focused on the priority sectors of the economy. Two of such schemes are the Agricultural Credit Guarantee Scheme Fund (ACGSF), and Export Refinance Scheme.