5 objectives of monetary policy in Nigeria
monetary policy in Nigeria
Monetary policy is a major economic stabilization weapon which involves measures design to regulate and control the volume, cost available of money and credit in an economy to achieve some specified macroeconomic policy objectives.
That is a deliberate effort by the monetary authorities which is the central bank of Nigeria to control the supply of money in the Nigerian economy and credit condition for the purpose of achieving certain broad economic objectives. The monetary policies rolled out by the central bank of Nigeria, in some cases with some degree of political/ government interference. For example in the United States, the Federal Reserve System administers monetary policy with the minimum government interference. In the case of Nigeria, before the central bank was empowered to carry out monetary policy formulation and execution with the federal ministry of finance. By then, where disagreements arose as to either what the contacts of the policy were to lie or the modus operandi of pushing it through, reference was made to the federal executive council which was the final adviser. Thereafter, the central bank of Nigeria was fully given the power to control the finance sector of the economy of the Nigerian state.
5 objective of monetary policy in Nigeria:
The central bank of Nigeria which is the apex bank that controls the supply of money and see over the commercial banks and checkmate their activities has an objectives that must be achieve, the major five objectives of the monetary policy is to ultimately achieve the macroeconomic goal which can change from time to time depending on the economic fortunes of the country. Generally the major objective of the monetary policy in the Nigeria is:
1. Maintenance of relative stability in domestic prices of goods and services.
2. The attainment of a high rate of, or full employment opportunities
3. Achievement of a high, rapid and sustainable economic growth
4. The maintenance of balance payment equilibrium in the economic wre demand is equal to supply
5. Exchange rate stability in the economy.
1. Maintenance of relative stability in domestic price:
This involves avoiding wide gyration of prices which are highly upsetting to the economy. Not does such wide gyration produce windfall profits and losses, but they also introduce uncertainties into the market that make it difficult for business to plan ahead. They, therefore, reduce the total level of economic activities. This objectives of avoiding inflation and deflation is desirable since and falling prices are both bad, bringing unnecessary loses to some undue advantages to others price stability is also necessary to maintain international competitiveness.
But while wide price swings are universally condemned, there is no general agreement as to the cost desirable pattern of price stabilization. Three possible alternatives have their adherents and some sort of a case can be made for each: solely rising prices, slowly falling prices, and constant prices (though the last option is rather unrealistic in the real word).
2. Attainment of high rate of or full employment:
This does not mean zero unemployment since there is always a certain amount of frictional, voluntary or seasonal unemployment (according to Ackley in 1978). Thus, what most policy makers aim at is actually minimum unemployment level and the percentage varies among countries.
3. Achievement of a high, rapid and sustainable economic growth:
This means maximum sustainable high level of output, that is, the most possible output will all resources employed to the greatest possible extent, given the general social and organizational structure of the society at any given time.
This highly desirable economic growth implies raising people’s standard of living. However, there is no agreement over the magic number that is, the annual growth rate which an economic should sustain.
4. Maintenance of balance of payment equilibrium in the economy:
Keeping international payments and receipts in equilibrium is avoiding fundamental or persistent disequilibrium in the balance of payments position usually, nation’s worry about persistent balance of payment deficits. The pursuit of these objectives arises from the realization that deficits in the balance of payment will retard the attainment of the other objectives, especially the objectives of rapid economic growth.
5. Exchange rate stability:
This involves avoiding wide gyration or swings (undue and unnecessary fluctuations) in the currency exchange rate; this meant to help in protecting and promoting foreign trade.
Why the central bank of Nigeria redesign the naira notes as a monetary policy
The central bank of Nigeria which is the apex bank recently redesign the Nigerian naira notes as part of its monetary policy, they include the 1000 naira, 500 naira and the two hundred naira not as part of the majors to control the supply of money in the Nigerian economy and to collect the old notes which has been outside the banking sector, the central bank of Nigeria disclose that a whooping 3.5 trillion naira has not been captured in the financial system of the economy and this has result in the low circulation of money in the economy, redesigning the naira note will give the bank the opportunity to capture and include all this money back into the financial sector, discouraging the hoarding of money in individual houses.
So far the central bank has been able to remit about 1.9 trillion back into the banking sector were the commercial bank are drivers of the process, individual business men and women can deposit their old naira notes in the banks and be able to withdraw the new notes.
Another aim of the central bank is to encourage business men and women to go cashless and do transactions on the e- naira platform were an individual can create a wallet were he or she can access his money and be able to buy goods and services by simply making electronic payment with ease.
Challenges in achieving monetary policy objectives
The relevant questions here are:
1. Are the multiple objectives of monetary policy compatible?
2. Can they be achieved simultaneously?
3. Does the pursuit of one objective lead us further away from another?
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