MONETARY POLICY MEASURE AS AN INSTRUMENT OF ECONOMIC STABILIZATION
ABSTRACT
In general, monetary policy refers to a set of measures designed to control the value, supply, and cost of money in an economy while keeping the level of economic activity in mind. An express supply of money, resulting in an excess demand for goods and services, will cause price increases and/or a deterioration of the balance of payments position. On the other hand, an insufficient supply of money may cause economic stagnation, referring to growth and development.
As a result, the central bank and the central monetary authority must strive to keep the money supply growing at an appropriate rate in order to ensure long-term economic growth and internal and external stability.
The central monetary authority’s discretionary control of the money stock entails the expansion or construction of money, influencing interest rates to make money cheaper or more expensive depending on the prevailing economic conditions, and channeling money to priority sectors.
In a nutshell, the goals of monetary policy are to control inflation, maintain a healthy balance of payments position for the country in order to protect the national currency’s external value, and promote adequate and sustainable economic growth and development.
As a result, this study delves into monetary policy measures in order to determine their effectiveness as instruments of economic stabilization in Nigeria.
CHAPTER ONE
1.0 EXECUTIVE SUMMARY
1.1 THE STUDY’S BACKGROUND
Monetary control measures, in general, include devices that influence the overall supply, cost, and availability of money and credit. In Nigeria, the monetary authority, which includes the central bank and the federal government, is responsible for initiating, articulating, implementing, and evaluating such policies.
The central bank has primary responsibility for initiating, articulating, implementing, and evaluating such policies. The banks’ proposal is subject to federal government approval.
Monetary policy measures are monetary management techniques implemented by the government through the central bank to control the money stock, or supply of money, in order to influence broad macroeconomic objectives such as price stability, high levels of employment, sustainable economic growth,
and a balance of payments equilibrium. These broad objectives are met through the application of appropriate instruments, depending on the goal of the policy formulation and the level of economic development.
The nature of the problems to be solved and the environment in which these problems exist determine the application of monetary policy measures as instruments of economic stabilization. These instruments are classified into two types: quantitative or indirect controls and selective (qualitative or direct) controls.
In market-based economies, where the quantity of money stock can be affected by the relationship between money supply and reserve money, as well as the monetary authority’s ability to influence the creation of reserves, indirect instruments are typically used. The reserves, and thus the money supply, can be influenced in the following ways:
i. Alteration in the reserves deposit ratio
ii. Alteration in the discount rate
iii. Changes in interest rates and
iv. Participating in open market operations (OMO)
MONETARY POLICY MEASURE AS AN INSTRUMENT OF ECONOMIC STABILIZATION
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