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PROJECT TOPIC: THE ROLE OF MONETARY POLICY AND ITS IMPACT ON NIGERIAN FINANCIAL SYSTEM (A CASE STUDY OF CENTRAL BANK OF NIGERIA)

Project Body:


CHAPTER ONE

INTRODUCTION

1.1    BACKGROUND OF THE STUDY

The growing importance of the modern state at ensuring adequate provision for' living and the need for economic growth in large part of the world have contributed to the entrance of the prestige of monetary policy as an important instrument of economic policy.

This write up will examine and explain various monetary policy instruments that have been used in Nigeria since the. inception of the Central Bank of Nigeria (C.B.N) which is the regulator^ body u6ecl by the Federal Government to regulate and control the money in circulation. The policies are designed in an attempt to change the trends of some monetary.

Variables   in   particular   and   directions   so   as   to induce the desired behavioral change in the monetary sector.

Emphasis would be laid on how the monetary authorities used these polices in controlling some mayor macro-economic problems now rampant in our society.

One of the primary responsibilities of any government is to ensure that citizens attain" a high standard of living, the monetary policies consist of action taken by government to help in achieving economic objectives.

Some of these objectives are as follows

      i.       Full employment

ii.      Rapid economic growth and development

iii.     Price stability

iv.     Equality in distribution of income

v.      Stable foreign exchange rates

vi.     Attainment of self reliance in the economy

vii.    Correction of balance of payment deficit.

Any    government    whether    a   developed    or    a developing country economic objectives which might be economic growth so as to increase the wealth per head of the  population  or the  prevention  of loss  or real  output and the cost that result from the failure to maintain the economy at its full potential output level, the improvement of the functioning of the economy by restraining excess demand and inflationary price increase from imposing real cost on society and the restraint off any tendency of the economy towards a chronic balance of payments Disequilibrium.

Therefore, in an effort to achieve these objectives government have put in place a number of different policy tools such as monetary policy that is topic under discussion other policy tools are fiscal policy, credit policy, foreign trade policy and exchange rate policy.

The    research    work    will    also    look    into    the instruments or weapons of monetary policies such as open market operations, interest rate, special deposit, reserve requirement, request and directives and finally given suggestions  and recommendations  on  how  these policies could be effectively used.

1.2    STATEMENT OF THE PROBLEM

Monetary policy has a major role to play in the Nigeria finance system and the economy in general.

To   ensure   efficient   and   effective   growth   in   the economy. Monetary policy must be allowed to stay for a period of three to four year -to ensure stable economy growth and enhance the control of monetary in the money and capital market.

The monetary policy when not in good planning and control will contribute to the inflationary trend of the nation economic. Although the performance sheet of the economy shows that economy is on good track but inflation rate continues to gallop for instance during 1999 fiscal year the rate of inflation stood at 15 percent, in year 2000 its reduced again to 0.9 percent at present it as shoot up to 5.5 percent.

These have contributed to the poor economic growth, in stabilization in the market system, inequitable distribution of income. The above discussions shows that not allowing the monetary policy to last for longer period before    introducing    another current measure    is    a problem facing the economy of the country and also the regulatory body of the policy ought to take caution and exercise adequate economic skills aim at achieving the best for the country.

1.3    OBJECTIVE OF THE STUDY

The main objective of this study is to indemnify the importance   and   impact   or   to    evaluate   the   role   of monetary policy and its impact on the financial system.

And to examine critically the adequate of monetary policy in Nigeria and then relate the general theoretic-­background    and    establish  specific monetary   policy indicated   by   the   structure   and   character   of  Nigeria economy.

In addition, it will also examine the historical potency of contemporary monetary policy in the changing economic circumstances of Nigeria growing effort and

possible prefer suggestions.

1.4   SIGNIFICANCE OF THE STUDY

This research work is important to every sector and everyone within the nation. Economists agree that money plays an important role in the economic development and growth process of a nation, ever since the days of an ancient Greek writer - Philosopher - Plato Aristotle and Xylophone write dealing with., money have dwelt on the issue of monetary policy. Monetary policy involves some process which will bring about the growth of the economic; these are the objective of monetary policy (the goals of the policy), policy formulation, and choice of policy instrument, policy implementation and policy evaluation / adjustment.

All these process will bring about great impact on the activities of the financial institutions that helps in the successful execution of the policies through their dealing^" with-general public, the introduction of these policy have increase the level of activities in the economy.

1.5    SCOPE  OF THE STUDY

The research work is designed to cover almost all the   areas   of   the   goals   of   monetary   policy   and   its instrument.   It will   deals   with   the   impact,   trend   and indicator of various monetary tools been used in Nigeria finance system to the supply of money and cost of money-is .Nigeria banking system.     

1.6   ORGANIZATION AND PLAN OF THE STUDY

In line -with the above discussion, these stages briefly states the outline of the various' chapters in the project work. In the light of the above, the project shall be divided into five chapters in order to achieve the aims of the project; each chapter shall deals with all the important aspect of the topic. Chapter one of the report will contain the introduction of the theme of the project work by giving the background of the study, statement of problem of study, objective of the study; significance of the study, scope and limitation of the study and the organization of the study.

.Chapter two will focus and deals with review of various literature materials on monetary policy.

Chapter three will focus on the brief history of the regulatory body of monetary policy in Nigeria which is the Central Bank of Nigeria (CBN) and the research methodology used.

Chapter four will analysis stating the information received so far on the on the monetary policy that is the review of monetary policy in Nigeria, comparison of current year monetary policy with previous year and the impact of monetary policy and Nigeria finance system.

Lastly, chapter five would cover or will be devoted to summary, conclusion and recommendation.

Through its influences on aggregate demand and hence on output. This school of thought even argues that a modest rate of growth because it is only in such circumstances that the rate of profit would rise and the motivation to invest would increase.

 It is further argued that the use of monetary policy to achieve growth can aid the achievement of some other objectives such as full employment,

The other view on monetary policy  is  the  classical view as redefine by Milton Friedman. According to this view, monetary policy cannot-be used, to achieve a legal unemployment which is lower than the natural rate of unemployment. However in an attempt to correct the new unemployment problem with an increase in money supply will simply lead to a repetition of the business cycle and this would destabilized the economy, the monetary policy which have been discussed above can further be illustrate with the use of business cycle which clearly show the rate of stabilization in the economy.


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