Thursday, September 17, 2009

EFFECTIVE MONETARY POLICY: TOOL FOR NIGERIA ECONOMIC DEVELOPMENT

EFFECTIVE MONETARY POLICY: TOOL FOR NIGERIA ECONOMIC DEVELOPMENT.
My concern has always been when will Nigeria join the list of developed countries in the world as it has overstayed on her time among the least developed countries un the globe. Recently G20 meeting was held and Nigeria the once popular giant of Africa was not even invited. The president of the country expressed his displeasure over this. Nigeria economy will soon celebrates its 50yrs of self determination but it is a pity that the older the nation the more complex its problems. But in this my article I will project effective monetary policy as what we need to foster economic development in this country.
What is monetary policy? It refers to the policy of the monetary authority of a country as regards monetary matters. It may be defined as that policy which deals with (a) “the controls of financial institution; (b) the active purchases and sales of paper assets by the monetary authority as a deliberate attempt to effect changes in money conditions (c) it also has to do with deliberate effort towards stabilizing the interest rate.
In brevity, it accelerate development by influencing the cost and availability of credit, by controlling inflation, and by maintaining balance of payments equilibrium.
Instruments of monetary policy necessary for Nigeria economic development.

1. Dedicated and responsible financial institution: Although one of the aims of monetary policy in developing economies is to establish and expand the financial institutions in the country. But I will rather advocate for financial institutions that are dedicated to the course of the nation and that are responsible in the discharge of their duties. Thank God for the new central bank of Nigeria president and his salutary courage of exposing the 5 hitherto perceived strong banks in Nigeria who were busy deceiving the poor Nigerians through their regular paper profit declared annually. For Nigeria to develop the mentality of the banks should be changed from just making profit to that of providing enabling environment to Nigerians who has visions of fostering the development of the country. As long as the primary commitment of our banks is to the shareholders and not to the macro economic objectives , there is bound to be problems and saboteurs in the polity.I will like to state here also that a strong central bank and selfless leadership is sine-qua non to achieving the monetary policy objectives.
2. A suitable interest rate policy: In Nigeria the interest rate structure stands at a very high level. Even in the Microfinance banks.Our banks don’t seems to be committed to the nations development course. The existence of high interest rates acts as an obstacle to the growth of both private and public investment in Nigeria. A low interest rate is rate is therefore, essential for encouraging private investment in agriculture and industry. Since in countries like Nigeria where the average income per person is low the businessmen have little savings out of undistributed profits, they have to borrow from the banks and they would borrow if the interest rate is low. Even the availability of cheaper money for” complimentary funds” will encourage private foreign investments. So the CBN should see to this.
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3.Proper adjustment between demand for and supply of money. An imbalance between the two will be reflected the price level .A shortage of supply will inhibit growth while an excess of it will lead to inflation. Therefore the central bank of Nigeria should control the supply of money in such a way and manner that the price level is prevented from rising without affecting investment and production adversely.

You can comment on this. Expect more soon

1 comment:

  1. A low interest rate can be encouraged to encourage investment and thus growth but we have to specify the limit to the interest rate reduction because we don't want a liquidity trap situation where the interest rate is so low that the demand for money as an asset becomes perfectly elastic thereby rendering monetary policy absolutely useless.

    As much as I believe that proper monetary policy can encourage economic growth in Nigeria, I do not believe that is the only solution. No matter how effective the monetary supply is, it cannot target both unemployment and inflation at the same time. finding that balance is where fiscal policy comes in handy and we shouldn't undermine the effect of proper fiscal policy. Since excess money supply leads to inflation and the opposite leads to high unemployment, we would need a second power (the government) to come in to regulate the economy either by contractionary fiscal policy when money supply is more or expansionary fiscal policy when the money supply is less as we cannot determine the exact balance of money supply needed in the economy

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