THE IMPACT OF MONETARY POLICY ON NIGERIA ECONOMY (1980 2010)
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‟s levels of living, 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.
Another problem is how to restructure the production and consumption pattern of the economy through the elimination of price distortion.
Another problem is the power response of the financial system to monetary policies control measures which has to do with lack of transparency in the separation of financial intermediaries. These problems have necessitated further for solution.