CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Nigeria still presents a clear reflection of the
third world economy in which the growing economy has some working machinery,
monetary and fiscal policies that are aimed at maintaining a balance in the
entire economy so that growth and development, which is the ultimate goal of
every economy, is realized.
Generally, monetary policy refers to combination of
measures designed to regulate the values supply and cost of money in an economy
in consonance with the level of economic activity. Monetary policy refers to
the credit control measure adopted by the central bank of a country.
Monetary policy
according to Olumechere (1988) is a deliberate effort by the monetary
authorities to control supply and credit conditions for the purpose of
achieving certain broad economic goals Johnson K (1956) define monetary policy
as policy employing central bank control of the supply of money as an
instrument for achieving the objectives of general economic policy.
According to Salvin
(1999) monetary policy is the use of open market operations change in discount
rate, change in reserve requirement and other measures available to the
monetary authorities to control the rate of growth of money supply. He further
noted that the goals of monetary policy are price stability relative full
employment and satisfactory rate of economic growth. As Akatu
(1993) noted, monetary policy in the Nigeria context encompasses actions of the
central bank of Nigeria that affect the availability and cost of commercial and
merchant bank reserve balances and thereby the overall monetary and credit
condition in the economy. The main objective of such action is to ensure that
over time, the long-run needs of the growing economy at stable prices.
The aim of monetary policy are basically to control
the inflation, maintain a healthy balance of payment positions for the country
in order to safeguard the external value of the national currency and promote
an adequate and sustainable level of economic growth and development. The
formulation is done by the federal government, mostly announced during budget
speeches while the enforcement of the policy is solely the responsibility of
the central bank of Nigeria (CBN) yearly.
Economic growth on the
order hand according to Kindleberger (1965) means more output, while Friedruan
John (1972) defines growth as an expansion of the system in one or more
dimensions without a change in its structure, and development as an innovative
process leading to the structural transformation of social system.
This economic growth is
related to a quantitative sustained increase in the countries per capital
output or income accompanied by expansion in its labor force, consumption,
capital and volume of trade. An economy on the other hand can be said to be
developed when there is a quantitative and qualitative increase in
the amount and quality of goods and services produced in the country. In its
widest aspect economic growth and development implies raising the standard of
living of the people and reducing inequalities in income distribution.
According to Michael P. Todaro/ Stephen
C. Smith (2011) development is the process of improving the quality of all
human lives and capabilities by raising people‟slevelsofliving, self-esteem,
and freedom.
In most countries the
central bank is saddled with the responsibility of conducting monetary policy.
In the case of Nigeria, the responsibility entirely lies with the central bank
of Nigeria (CBN). The discretionary control of money stock by the monetary
authority involves the expansion or contraction of money, influencing interest
rate to make money cheaper or more expensive depending on the prevailing
economic situation.
The evaluation of
monetary policy intends to show how this macroeconomic policy is formulated and
executed in practice particularly in an environment of federal government
fiscal dominance and highly liquid banks.
Between April 1992 and March 1976, the use of an
aggregate credit ceiling was dropped for specification on several distribution
of bank credit throughout the period they also served quitted effectively as
instruments of monetary control.
The situation was particularly serious
between 1982 and 1985 when stringent economic controls were not effectively
used in arresting the deteriorating situation. In-evitable a
period of economic adjustment has to come with the introduction of the
structural adjustment programmed1 in July 1986. Te overall aim of the economic
adjustment process embarked upon by the federal government in July 1986 was to restructure
the federal production and consumption pattern of the economy the elimination
of price distortion and reduction of the over dependence of the economy on the
export of crude oil and impart the raw materials and consumer goods.
In the course of these
project, detailed attention will be paid to monetary policy in which its frame
work and implementation will be analyzed and its impact on economic growth in
the period of 1930 to 2010.
1.2 STATEMENT OF THE
PROBLEM
The monetary policy implementations in
the economy over the past years were detrimental to, and inconsistent with the
development needs of economy. This concern has exerted pressures on the view to
finding possible solutions. As
a result of this the
structural adjustment program was introduces in the economy and to liberalized
the financial system.According to Anyanwu (1993) monetary policy is a major
economic stabilization weapon which involves measures designed to regulate and
control the volume, cost, availability and direction of money and credit in an
economy to achieve macroeconomic objectives or goals. The
problem lies on making use of policy that will solve the economic problems
instead of the economy to have low level 1of investment, income and also the
level of demand and supply will reduce.
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