EVALUATION OF THE INDEPENDENCY OF THE CENTRAL BANK OF NIGERIA
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EVALUATION OF THE INDEPENDENCY OF THE CENTRAL BANK OF NIGERIA
INTRODUCTION TO CHAPTER ONE OF AN EVALUATION OF THE INDEPENDENCE OF THE CENTRAL BANK OF NIGERIA
1.1 BACKGROUND OF THE STUDY
Central banks are generally government-owned institutions. They oversee monetary policy first and foremost, determining how much domestic money will circulate in a country’s economy at any given time. They also serve as government financial agents, handling and disbursing liquid funds.
Third, they may play a role on the international stage in determining a country’s currency rate and/or managing its foreign reserves. Finally, they have a variety of supervisory and regulatory responsibilities to assure the continued stability of the private banking sector.
The degree to which the central bank operates independently of executive and legislative influence is referred to as central bank independence.
In recent years, central bank independence has gained empirical and theoretical importance. On the one hand, the number of nations implementing central bank reform has steadily increased over the last two decades,
peaking in the early 1990s (Maxfield 1997). On the other hand, the central bank’s more visible and powerful function has been accompanied by a considerable literature in both economics and political science on the causes and effects of independence.
Following the adoption of democracy in Nigeria in 1999, the Nigerian economy began researching the monetary anchor that is ideal for her economy, which is plagued by excessive inflation and unemployment.
As a result, the Central Bank of Nigeria (CBN) stated in January 2009 its intention to implement an inflation targeting regime, which was eventually abandoned (Uchendu, 2009).
According to Odoko (2008), the apex bank has postponed the start of earlier scheduled inflation targeting, which was slated to begin in January 2009, in order to adequately build out the operational framework in the Nigerian economy.
Furthermore, the authority observed that in most countries nowadays, the consensus is to offer respective central banks instruments as well as financial and budgetary independence in order to assure their efficiency in the formulation and execution of monetary policy.
As a result, the Central Bank of Nigeria was granted partial operational autonomy, making it self-sufficient. By 2007, the CBN has been granted complete authority (CBN Act, 2007). As a result,
the Nigerian monetary structure currently blends operational autonomy with transparency. Increased accountability is a key feature of the framework, as is the regular release of the apex bank’s operation communiqué.
The lawmakers’ recent proposal to modify the Central Bank of Nigeria Act jeopardised this authority. This has raised considerable worry among stakeholders and researchers.
As a result, this study is being conducted to investigate the Central Bank of Nigeria’s independence. This is especially significant given that the Central Banks of Nigeria’s economies have already dabbled with exchange rate targeting and monetary targeting.
The rationale for independence and openness, according to Martijn and Hossein (1999) and Dincer and Eichengreen (2009), is founded on the idea that it strengthens the legitimacy of monetary policy by making policy predictable to private agents.
It also boosts a country’s and the Central Bank’s political legitimacy, especially if policy has been inconsistent over time. Furthermore, independence and transparency are linked to a low inflation rate.
The CBN Act of 1958 established the Central Bank of Nigeria, which began operations on July 1, 1959. According to the CBN operate of 1958, the bank’s key regulatory objectives are to: maintain the country’s foreign reserves,
promote monetary stability and a sound financial environment, and operate as a banker of last resort and financial adviser to the federal government.
The central bank’s role as lender of last resort and adviser to the federal government has occasionally landed it in hot water with regulators. Following the end of imperial rule,
the government’s desire to become more pro-active in the development of the economy became clear, particularly following the end of the Nigerian civil war.
The bank followed the government’s desire and made a concerted effort to supplement any shortfalls in credit allocations to the real sector. The bank soon began lending directly to consumers, contradicting its original purpose to engage through commercial banks in consumer lending activities.
However, the policy was an offshoot of the time’s ndigenization strategy. Nonetheless, the government has been actively involved in creating the nation’s money and equity centres, forming securities regulatory boards, and introducing treasury products into the capital market through the central bank.
1.2 STATEMENT OF THE PROBLEM
Inflation targeting is directly related to central bank independence. Inflation targeting is described as a framework for policy decisions in which the Central Bank expresses an explicit commitment to conduct monetary policy in order to meet publicly disclosed numerical inflation targets within a specific time period (Aliyu and Englama, 2010).
2009). As a result, the Central Bank strives to implement a monetary policy framework that ensures price stability, which can only be accomplished through the CBN’s independence.
The Central Bank of Nigeria’s independence has recently been called into question by the action of Nigeria’s immediate past president, Mr. Goodluck Jonathan, in suspending CBN governor Sanusi Lamido Sanusi. However, the researcher is out to investigate the Central Bank of Nigeria’s independence.
1.3 OBJECTIVES OF THE STUDY
The following are the study’s objectives:
1. To assess the Central Bank of Nigeria’s independence.
2. To identify the advantages of the Central Bank of Nigeria’s independence.
3. To identify the causes restricting the Central Bank of Nigeria’s independence.
1.4 RESEARCH QUESTIONS
1. What is the Central Bank of Nigeria’s level of independence?
2. What are the advantages of the Central Bank of Nigeria‘s independence?
3. What are the elements restricting the Central Bank of Nigeria’s independence?
1.6 SIGNIFICANCE OF THE STUDY
The following are the study’s implications:
1. The outcomes of this study will educate the general public on the importance of the Central Bank of Nigeria’s independence, with a focus on the benefits of the nation’s economy’s independence.
2. This study will contribute to the body of literature on the effect of personality traits on student academic achievement, forming the empirical literature for future research in the field.
1.7 SCOPE AND LIMITATIONS OF STUDY
This study on the examination of the Central Bank of Nigeria’s independence will examine the CBN’s operations in order to determine the apex bank’s level of independence.
STUDY LIMITATIONS
Financial constraint- A lack of funds tends to restrict the researcher’s efficiency in locating relevant materials, literature, or information, as well as in the data collection procedure (internet, questionnaire, and interview).
Time constraint- The researcher will conduct this investigation alongside other academic activities. As a result, the amount of time spent on research will be reduced.
REFERENCES
Is Nigeria Ready for Inflation Targeting?, MPRA Paper, no. 14870, available online at http://mpra.ub.uni-muenchen.de/14870/. Aliyu, S. and Englama, A.
‘Central Bank Independence and the Conduct of Monetary Policy in the United Kingdom,’ Martijn J and Hossein S (1999), IMF Working Paper, no 170.
K. Eichengreen (2009). Ordering, Ranking, or Scoring Central Bank Independence? The Design and Use of Political Economy Indicators, edited by King Banaian and Bryan W. Roberts Jr. Palgrave Macmillan, New York, 2008.
‘Central Bank Independence and Transparency: Evolution and Effectiveness,’ E. Maxfield (1997), IMF Working Paper, no.119.
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