THE ROLE OF CENTRAL BANK IN ESTABLISHING NIGERIA ECONOMY

ABSTRACT

Central banks are general known to be concerned with the maintenance of monetary stability.  This task involves the regulation of money in circulation  consistent with the absorphic capacity of the economy axiomatically, excessive growth in money supply rates to high rates of spending on domestic or foreign goods given that domestic supply of goods and services in essentially in elastic in the short run, excess liquidity is likely to result in substantial inflationary is likely to result in substantial inflationary pressures in the economy.  To the extent that spending pressures are directed towards foreign goods or (assets0 balance of payment pressures will ensure.  Thus, the task of monetary authorities is to ensure that the growth in the domestic  liquidity is consistent with the  objectives of out-put growth, inflation and the balance of payments.  This at any given time the CBN would ensure that supply of money is sufficiently optimal to sustain non-inflationary out-put rate and exchange rate stability. One of the strategies of achieving this objectives is through the adoption of the liquidity management policies / techniques which afford the CBN,  the use of monetary policy instrument to influence bank reserve and consequently the growth in money supply.  The ability of the central bank to effectively control domestic liquidity depends interaction the level of the economic development particularly the state of its financial system the number and types of policy instruments available to the central banks and degree of harmonization between monetary and fiscal policies.

CHAPTER ONE

1.1     INTRODUCTION

The growth and development of international trade along  west African coast played a major role in extending the medium of exchange beyond trade by barter in the nineteenth century. The ‘’native currency’’ system which relied  on item  such as manila, cowries, brass  and copper rods   had to accommodate foreign currencies such as Maria Theresa dollar and British  silver coins  increased trade motivated  the setting up of the Bank of British West African [BWA] in 1894, thereby drastically reducing the barter system and ushering in a rudimentary form of commercial banking. The issue of legal  tender currency for the  West African region  was however deferred till 1912 when the west African currency Board  [WACB] was established. The WACB was an offshoot of the recommendation of the EMMOE committee set up by the then secretary of  state the Rt. Ifon. Lewis Harcourt. The WACB retained  the services of the BBWA as its currency distribution agent. It set  up four currency centers in Lagos [Nigeria] and Bathurst, now Banjul [the Gambia].The currency in circulation  in West Africa increased steadily through the 1950s  in response to the growing  demand and increase in the World price for west African  primary products such as cocoa, groundnuts and  palm oil.

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