THE ROLE OF THE CENTRAL BANK OF NIGERIA IN THE DEVELOPMENT OF MONEY MARKET
DEFINITION OF CENTRAL BANK
A central bank simply defined, as an apex financial institution which is charged with the responsibility of managing the cost, volume availability ad direction of money and credit in an economy with a view to achieving some desired economic objectives.
[widget id=”related-posts-by-taxonomy-2″]
The central bank perform the following functions:
- issuing of currency
- banker to banks
- lender of last result
- clearing and collection of cheques and other instrument.
- DEFINITION OF MONEY MARKET
Money market refers to an arrangement whereby borrowers
and lenders of money on short-term basis are brought into contractual relationship. The money market is a collective name for the various firms and institutions that deal with the short-term debt obligation.
The maturity of shot-term obligation or money market instrument ranges from one day or 3 years.
The money market perform the following function:
- They help to reduce the risk and discomfort of carrying cash it’s acceptance of near cash assets.
- The money marketer helps to provide the necessary instruments for the expansion and contraction of monetary supply within the economy.
- The money market in any given economy is very significant as it primary provides a means for flowing shot-term fund from the surplus (saving) to the deficit segment (borrowers).
- The money market provides banks and other financial institutions the necessary instruments for efficient and effective management of their financial resources.
- The money market provides the mechanism, which banks use to sustain the desired liquidity levels.
- OBJECTIVES OF THE CENTRAL BANK OF NIGERIA
According to the central bank of Nigeria Act of 1958 and
Central Bank of Nigeria Decree No.24 of 1991, which repeated and replaced it, the Central bank of Nigeria was established to pursue the following objectives:
- To issue legal tender currency in Nigeria
- To maintain external reserves to safe guard in international value of the legal tender currency.
- To promote monetary stability and a sound financial system in Nigeria
- To act as banker and financial adviser to the federal government. Based in the foregoing objectives the Central Bank of Nigeria performs all the function that a full fledged central bank perform in other countries of the world.
- FUNCTIONS OF CENTRAL BANK IN MONEY MARKET
- The role of Central Bank of Nigeria in the development of money market is the provision of Central Bank Credits to most financial institution such as Commercial Banks etc., as this has been the major course of monetary expansion in the economy.
In the line with this, the central bank also control money and credit in order to check inflationary and deflationary pressure within the economy for an effective operation of the money market.
- The Central bank of Nigeria plays a very significant role in money market though it’s monetary policies, which help to stimulate industrial as well as economic growth and development of the Nigeria economy.
- The Central bank uses most of the institution operating in the money market in the discharge of it’s statutory functions such as monetary and banking functions, management of foreign payment and receipts, management of public debt and development function.
- The Central Bank play a role in money market which have provided access to finance for and smaller companies and encourage institutional development in the facilitating the setting up of Nigeria domestic funds, foreign funds and venture money market funds (capital).
- Lastly but constancy not the least, the central bank of Nigeria through improvement the efficiently of money by providing market measure of returns on capital and money market mechanism for management changes of compared with the administrative of political mechanism of public sector co-operations.
- METHODOLOGY
Contribution of the central bank of Nigeria in the Development of Nigeria money market need cautions and realistic approach so that the actual objective will be achieved. To this end, current data especially the current ones are needed in this connection to enable Nigeria a white, both market, students, businessmen etc. knows the extent of economic development of money market since it’s establishment of compared to the other developing countries like Gambia, Senegal, Mali etc.
METHOD
The method of research not appropriate to this project is library research, since documentation of CBN efforts towards the establishment and development of the Nigeria money market are complied the library research method mostly make use of books where accurate and current reports of events are documented. The books consulted provided such vital and current information needed to bring into focus the actual economic development of Nigeria for analysis at all the information were obtained form the monetary authorities.
The CBN, the financial, the CBN billion.
The CBN annual report and statement of account Nigeria financial system, structure and growth by PNC Okigbo, the Nigeria financial system by G. O Nwankwo, money and banking in Nigeria by Oketie Uzoaja, central banking in under develop money market by N. Sen finance and banking, central banking in Nigeria by often achieving even development in Nigeria, problems and prospect edited by E. J. Nwosu, business concord, business, financial magazines.
Contributions of CBN towards the development of Nigeria money market is not only theatricals economic statement of each which tales between 1975 and 1885. These will help up to know the extent of development and the great that required certain improvement hence the need for the book that will be record accurately the transaction and development that have taken place.
- PROCEDURE
The procedure analysis the data collected in order to carryout the state investigation will run thus.
Firstly, as project covers period of 10 years (1995 – 1988) the analysis should be better one yearly nonevent which here taken place during the year under review.
Secondly, I shall tabulate all that have taken place in the money market in Nigeria in respect of debt instrument issued and subscribed during the year residing examples treasuring bill, certificate or deposit, eligible development stock and inter-bank transactions. This will be followed by a record table examine various issue out standing at the end of each year.
The third table shall indicate the total amount of asset available at the market at the end of year. The amount and percentage increase it decrease recorded. However the forth table will review the amount of CBN’s assistance to the market by way of rediscount.
Thirdly, I shall examine the factors that feels to increases or decreases or the debt instruments and the act of each charge. Fourthly, solution to avert or remedy the impact of such changes will be recommended.
- THEORETICAL REVIEW
The Central bank of Nigeria and connected itself with money market actualities so that it will keep watch over all parts of the market in the interest of economic stability. But it’s primary filed of operation in the market for borrowing and lending o term funds. So organized money market can function effectively in the absence of a Central Bank. A money market develops around it. They were existence of CBN does not ensure that the money market of Nigeria will be sufficiently organized to approximate to the London money market.
- Sen. is his book titled central banking in undeveloped money market said that the factor which were responsible for in sufficient and in effective near of the money market were as follows.
– Absence of a highly organized banking system
– No adequate of bill of exchange , treasuring bills, short-term government bonds or other assets.
– No sufficient number of dealer who are always
– Prepare to hold or resale these short-term assets the stable food of there money market.
– The whole organization of money marketer is not integrated. There is need for an integrated structure in which every sub-market is dependent upon and influenced by other parts.
– The market is incentive to the impact of international influences. Because of its degree of liquidity such a market tends not to receive funds from board.
The tools of monetary in arrangement available to the CBN are the powers to buy and sell securities in the open market i.e. open market operation (OMO) which is a system where by the CBN buys and sells securities in the open market in order to charge the liquidity position of the commercial banks and thus the inter mediation.
One effects the money market through a transaction which use or deduct from the supply of money in the market and so increase or decrease the caph balance of banks.
A purchase or sale of securities by the CBN affects to extent the prices of government securities and therefore influence the long term rates of interest.
If the security market is board and active, open market operation can be carried out successfully even if banks do not maintain filed rates between their cash reserves and deposit.
A record sharing of policy instrument in through discount rate to the rate of which the Central Bank discount loans to commercial banks. The arrangement market it possible for commercial bank to correct temporary detect in their reserves positions the central bank.
- EMPIRICAL REVIEW
I have earlier enumerated the various functions, which the CBN is expected to perform through the money market, which includes.
- Providing basis for formulating an effective monetary policy etc. However the Nigeria money market still remain undeveloped deposit the efforts of the CBN to develop it.
This could be traced to the number of dealing recorded in the market and the extent of participation of other participants. As have been mentioned earlier the characteristic of developed money market will include.
- Highly organized banking system
- Availability of debts instruments
- Attraction of foreign funds
- The existence of sub-market.
These characteristic could be said to exist in the New York
market and London money market for instance in American, the weekly transaction in the New York money marker records and average of in billion per week if this figure is multiplied by 5% weeks in a year, at the end of each year, the total volume of transaction will be over 8780billion there exist with the New York money market over 25 sub-market with each reaching spontaneity to charges in the other, it therefore satisfied most aspects of developed money market the inter-bank transaction control over 92% of transaction on the new York money market. This reveals the extent to which the commercial banks attach importance to inter banks transaction.
This of course does not reveal the number but the volume of transaction.
The London discount of money market established over a hundred years ago record a weekly average volume of transaction of ₤4billion, the total assets of London discount on money market amounted to over 23.54billion company of 8.76 billion treasuring bill ₤6.21billion in other assets from the about data instrument.
However, in most West African countries like Sierra Leone and Gambia, the money market is still at its puberty age according to Sengambia annual reports.
The central bank was promulgated first in 1971 and will resume operation in 1972.
[simple-links category=”3207″]
