Monetary Policy – Problems Of Implementation By The Central Bank

Monetary Policy – Problems Of Implementation By The Central Bank

Monetary Policy – Problems Of Implementation By The Central Bank



Monetary policy deals with the terms and conditions under which money and credit are provided to the economy by the monetary authorities. Monetary policy can be defined as the deliberate effort by the central bank to control the money supply and credit conditions for the purpose of achieving certain broad economic objective.

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This unique role of the monetary authorities, especially the central bank which is the central monetary authorities of a country, derives from the fundamental roles of money on a modern economy. Essentially, monetary policy attempts to maintain a balance as much as is possible, between the supply and demand for the monetary assistance of a specific economic system. The underlying purpose being to achieve adequate and stable economic growth for a developing country. This may translate into any or combination of price stability, high level of employment or an acceptable rate of unemployment, desirable or sustainable rate of economic growth over the long terms as well as balance of payment equipment. (CBN, Research Dept.)

Although these are all desirable objectives, these which monetary policy is expected to assist in achieving may not be of equal importance for all times. In an economy or an every situation, this monetary policy usually has a priority focus which must be a reflection of the stage of development and the unique circumstances of the economy concerned, i.e the prevailing economic and condition.

The objectives of monetary policy should be designed within certain constraints such as the possible conflict of economic policy objectives and thus the need for trade – off. For instance, much as it is desirable. It is generally difficult to achieve price stability and high economic growth simultaneously. Also, while it is desirable to aim at balance of payments equilibrium, the appropriate tools such as exchange and interest rate charges may not always be rigorously applies because of their possible consequences for price stability and economic growth. It is also needless to emphasis that monetary policy is only supportive to the national economic development strategy and policy which also call for the application of fiscal and sectroal policies. Consequently, monetary policy needs to be designed to attain a realistic and consistent set of objectives within the general economic policy framework of the country (Ojo, M.O, 1992).

Monetary policy in the current Nigeria content, encompasses actions of the central bank that affect the availabilities and cost of commercial and merchant banks reserve balance and thereby the overall monetary and credit conditions in the economy. The primary goal of such action is to ensure that overtime; the expansion in money and credit will be adequate for the long-run needs of the growing economy at stable price. (the framework of this description has been adapted from “the federal reserve systems purposes and functions”. Board of the federal reserve system, Washington D.C sevethed, 1984).

This could be said to be the basic objective of monetary policy (i.e. as stated above). However, over the short-run monetary policy is called upon to ensure the attainment of a wide range of other objectives or priorities. These include combating inflationary pressures, restoring a sustainable balance of payment, maintaining a stable exchange rate at internationally competitive level and restoring stability in the money market. Sometime, changes in monetary policy are undertaken as part of concerned actions to remove obstacles to growth of saving and efficient allocation of investment.

A very often the case, the pursuit of these short-run term goals tends to conflict with the basic goal of long-run term growth for example; a vigorous anti – inflationary stance would typically regime the sacrifice of output growth in the short-run. Similarly, a stable exchange rate objective might call for a higher control on aggregate demand which in turn adversely impact output. Moreover, attaining the objective of exchange rate stability at internationally competitive level could require a significant cost – push pressures on the price level. In sum, difficult trades – off are inherent in the conduct of monetary policy, making the central bank a frequent target of criticism and various kinds of pressure (Akatu I. A 1993).

It is easy to state the objectives of monetary policy qualitative terms. The difficult task is to define the objectives so that they are operational. What the policy maker requires is a way of knowing whether goals are being met and of gauging how well goals are being met. He needs a way of measuring the “stableness” of prices, the “fullness” of employment, the “adequacy” of economic growth, and the “nearness to equilibrium” in the world dollar market. In addition, he needs specific benchmarks which indicate how stable are stable prices, how full is full employment, how adequate is adequate economic growth, and what constraints external equilibrium, for without these benchmarks there is no way for the policy maker on the public to judge whether objectives have been accomplished the problem of the policymaker is analyses to the problem of the person on a diet. The dieter not only needs scales for measuring weight loss but a target weight level for determining the success of the diet.

When we examine the objectives of adequate economic growth. How can economic growth be measured? And what is an adequate rate of economic growth? To answer the first question, growth can be most comprehensively measured by the rate of increase in the real net, national product, real because it is real growth, which matters, and net because capital goods are used in providing new products. This comprehensive measure of growth involves several component measures. The rate of increase in real net national product is a function.

 The rate of increase in the supply of labour, which in turn, depends strongly on the rate of increase in population.

 The rate of increase in the availabilities of land and other natural resources.

 The rate of increase in the lock of capital goods, which, in turn, is a function of the rate of saving and investing, and

 The rate of increase in productivity of labour, capital, and resources productivity itself being dependent on the state of technology and know – how. An increase in any of these component factors will naturally increase the rate of economy growth.


The instrument of monetary policy through the monetary authority times to achieve its objectives can be conveniently classified into two broad categories; the direct and indirect instrument of monetary control.

There is a basic difference between the mechanisms of direct and indirect monetary control. Under a system of direct monetary control, the monetary authority uses some criteria to determine monetary and credit targets, and interest rates, which are the intermediate target to attempt to achieve the ultimate target of policy. In a regard indirect monetary control, because the intermediate variables are not under the control of the central bank, only the operating variables which are related to the path of the intermediate variables, particularly the monetary base (or reserve money which comprises certain liabilities of the CBN and include currency with the non – bank public and total bank (reserves) are managed, while the market is left to determine interest rates and credit allocation (CBN, research Department, 1993).

The indirect approach is used very extensively in the more developed economics, while the approach predominates in the less developed economics of the third world with under developed money market and centrally planned economics. Both techniques (direct and indirect) aim at influencing the cost and availability of banking systems credit. The direct techniques comprise the imposition of credit ceilings on individual banks, the regulation of deposit and lending rates, as well as sectorial credit allocation. The indirect techniques achieves the same objectives through the use of open market operation (OMO) supplemented by cash reserve requirement and discount window operation (oke, B.A. 1995).

It is pertinent therefore to examine these tools of monetary control is some details here, paying particular attention to the applicability of each instrument especially in the Nigerian content and in general.


Under-developed financial markets tends to limit the tools of monetary policy, largely, to the direct instruments or quantitative control which set the monetary targets at desired levels.


Interest rate can be defined as the return to field on equity or opportunity cost of deferring current consumption into the future (Uchenolu O. A. 1993). Examples of indirect rates are saving rate, discount rate, lending rate and treasury bill issue rate.

One common tools is the regulation of interest rates though, for instance, the specification of level or ranges at or within which both deposit and lending rates are to be maintained by the banks. The rational for doing this is that the under-developed nature of the financial market coupled with scarcity of capital might not being about the optimum pattern of resources allocation in the economy (Ojo, M.O. 1992).


This involves the imposition of qualitative ceiling on the overall credit operation or the banking system by the monetary authorities. In Nigeria, the CBN is empowered to fui ceiling on the volume as well as the rate of increase in bank credit, which the commercial banks should maintain from to time. It can also prescribe a sectoral distribution of credit with or without a specified rate of overall credit expression, i.e. guidelines for sectoral allocation of the total permissible credit.


The use of indirect instruments is the strategy in a market based economy and they operate by taking advantage of the relationship between the money supply and reserve money and the ability of the monetary authorities to influence the creation of reserve money (CBN Research Series, 1992)

Indirect approach of monetary control involves the use of reserve requirement open market operation (OMO), discount rate, etc, in the financial markets to control the cost and availability of credit. It is thus different from the direct approach whereby credit control is directly achieved through the imposition of credit ceiling on banks by the monetary authorities without going through the financial markets.

Under the regime of indirect approach of monetary control, the permissible aggregate credits would continue to be determined by the central bank but mainly for monetary purposes.

The central bank will monitor the movement of its monetary base, defined as “the sum of its credit to government and private sectors not foreign assets”. The components of the monetary base represent sources of creation of the base while the monetary base is held by banks and non-banks as reserves and currency outside the bank respectively. (Oresotn F.O)


Central bank engage in open market operation with a view to regulating the cost (interest rates) and availability of credit and consequently influence commercial banking system credit operation (CBN Brief series, 92/93).

Open market operation involves the exercise of the discretionary power of the central bank to pressure or sell in the financial markets government or other eligible securities from the private sector. It is desired to curtail credit expansion in an inflationary situation.

The central bank undertakes to sell securities in the fiancial market. The impact of this is to reduce the cash reserve position of the commercial banking system in carrying out its credit expansion. The resulting monetary contracting may caused interest rate to rise, discourage investment, lower aggregate spending and ameliorate the inflationary pressure.


The monetary authority can influence the resources of the banks and the only supply by manipulating its discount rate, which it is the rate at which it lends money to the banks as a lender of last resort. This action is at the nature of the bank. Other interest rates tend to charge with the change in discount rate. Indeed, in well – developed financial markets, changes in the discount rate produce an announcement effect on the credit markets, which may influence the cost and availability of credit. But for this to be effective, the bank must come forward to borrow from the monetary, while interest rate must be influenced to a greater extent by interest rate movements, which may not be the case in situation of high returns on investment.

A discount rate that is how relative to market rate make it more likely that institution will come to the window (discount window). Consequently, depositing institutions (banks) will tend to increase their borrowing when market interest rates rise relative to the discount rate and to contrail borrowing when market rate falls.


Cash reserve requirement is a monetary policy instrument that obliges banks to hold a specified portion of their deposit liabilities as cash deposits with the central bank (Frieduman M. 1986). Usually, it requires banks to keep with its reserve which is determined as a proportion of deposit liabilities. A change in reserve requirement will tend to influence the reserve of the banks and hence their ability to creates many through their credit operation (CBN Research Department). Reserve requirement are particularly define for sterilizing excess liquidity in the banking system but are less efficient for the day – to – day management of bank liquidity, for which open market operations are much more efficient.

Even in a developed financial system this instrument used only discretely as a charge in the reserve requirement signifies a major shift in monetary policy.


This section examine the various direct monetary control instruments employed as the varies problems encountered.

The main problems of monetary policy are more or less a carry over from the decade of the 1970’s (Ojo M. O. 1993). First the inadequacy of the monetary control framework was clearly reflected in the development in the early 1980s. For instance, the central monetary authorities had no effective grip on the growth of monetary aggregates in line with stipulated targets. The sectoral credit controls were also not very effective. The firm control over interest rates and the exchange rate was also a source of instability in the monetary control regime. The over valued exchange rate of the Naria put a considerable amount of pressure on the eternal sector and control of monetary expansion through the fluctuation in net foreign assets. In the some vain, government fiscal operations also constituted a major constraint on effective monetary control. In the early 1980s, between 1980 – 85, a period of economic crises, the central bank, financing of government deficits assumed a more serious dimension in contract to the 1970s when the rapid monetisation of oil receipts was the main problem. But unsustainable high government spending was a common feature since the early 1970s. (Sanui J. O. 1988).

The authorities carries out from reacting financial sector forms, beginning with the de – control of interests rate in 1987 and culmmiating in the general shift for the use of direct to market – based system of monetary management. As might be expected, the reforms in the financial sector and the monetary policy regime brought with new challenges in the conduct of monetary policy by the central bank. in the brave new world thus created, the bank find itself having to navigate in previously uncharted waters with a vessel whose controls are yet far from being adequately familiar.

Out of the monetary policy problems inherited from the 1980 – 1985 period, quite a few were addresses during the period of adjustment between 1986 – 1989. those dealt with include the simplification of the sectoral credit controls, the deregulation of interest rates and adoption of a market – related determination of the Naria exchange rate.

To a large extent, these actions were compatible with the main thrust of monetary policy. However, the fundamental constraints on monetary policy remained. The ineffectiveness of the direct control framework persisted and its shortcoming were quite to significant, while government fiscal operations continued to constitute a destabilizing factors in the monetary management.


Credit ceilings are used in the CBN monetary process as quantitative limits (percentages) to ensure that domestic credit expansion and the monetary implication of the balance of payment target match the expected increase in the demand for total liquidity in the economy. The quantitative limited are denied from the monetary survey of the banking system (falagam S. B. 1978).

It has proved difficulty achieved the monetary under the use of credit ceiling since their inception. Even doing the period of adjustment, the gaps between the targets and actual growth rates in credit to government and the private sector have been too for comfort. Without doubt, credit ceiling could be very effective in restraining monetary growth, especially at the initial stage of their application. But their implication tends to be ineffective with time. (Ojo M.O. 1992).

The Nigeria experience has revealed problems to the varying composition of credit, the enforcement ceiling and the relative efficiency of the control system. On the composition of the credit limit many items of credit were from time to tome excluded from the ceilings for justifiable reasons, but this action gradually eroded the effectiveness of the ceiling. Pasy examples of such exemption, as indicated earlier, were loans for the purchase of vehicles by worleers, the purchase of shows under the indigestion decree and excess loans were granted for the purchase of shares of privatized companies under the privatization and commercialization program of the federal government were excluded from the ceiling for some points.

The credit guidance could have been a source of inefficiency in the banking system. Permitting banks irrespective of their efficiency, to grow by the same ratio as stated in the guideline tends to restrict composition in the system. It protects weaker banks, while prevents the growth of more efficient ones. This practice also faran the larger banks with large turnovers. Direct credit control could also prevent due recognition to important changes in the economy such as the changing resource – base of the banks. Under the circumstance dynamic banks that aggressively mobiles savings may not be adequately rewarded. Credit ceilings also promote the growth of credit and general operations of the unregulated markets. There have been incessant allegation of banks Turing to circumvent the ceilings by acting a brokers between owners and borrowers of funds, which tends to diminish the efficiency of the financial system.


Selective credit controls have been used in Nigeria as part of the contribution of the monetary authorities to the process of accelerated economic development by allowing easier credit access to the productive sectors. They are particularly useful in less developed countries where the money and capital markets are poorly developed. Specifically, such controls can be used to deals with bottleneck, inflation and uneven growth in the economy.

The practice of selective credit control has taken several forms in Nigeria as indicated earlier. The commonest is the sectoral allcation of commercial and merchant bank loans and advances within the overall credit limit. Agricultural and manufacturing enterprises are allocated the bulk of the bank credit. There is also a regional dimension to the selective controls. For instance banks have been require to lead to rural branches as a way of expediting the transformation of the rural areas. This has been the care with the control on credit to agriculture and small-scale enterprises were shortfalls on credit granted in relation to prescribed ratios are deposited with the CBN and lent at confessional rates of interest to some open financial institutions as the Nigeria agricultural and co-operative bank (NACB) (CBN Research Department, 1990).


The cash liquidity ratios formed another segment of the monetary control framework. As by the CBN, the cash ratio was “a population of demand deposits of a commercial bank that should be held at the bank”. the merchant banks were not required to observe liquidity ratios computed as populations of their amount liabilities such as deposit liabilities, short – term inter – bank – loan, not balances with foreign branches and banks, free balances with CBN, government debt instrument with a remaining maturity of cost than three years and certificates of deposit of less than 18 months to maturity. The commercial banks usually were required to maintain a higher minimum liquidity ratio than the merchant banks.

More importantly, the liquidity ratios of the commercial merchant bank have been much higher tan the stipulated minimum and will have to be find at substantially higher levels to make effective. The minimum liquidity ratio for both commercial and merchant banks remains at 30%.



Unfortunately, however, we must again remember that the central bank open market operations are subject to the same difficulties already discussed with regard to the others of monetary policy whenever deflation or depression threatens. The CBN can certainly flood the banking system with new deposits, thus providing large pool of funds which do not have to be kept as resenes (the pool is called once reserves) and of course there reason for the CBN to follow this policy. Yet no matter how great the level of excess reserves pumped into the system, that is to guarantee that businessmen will want to borrow – they may very well not want to with business conditions looking bad all about them – and at the same time there is no guarantee that banks want to tend. Ordinarily, they would wish to, in order to earn interest, but in bad times, they may prefer to keep excess reserve which they may consider less risky than lending to business when economic conditions depressed. Naturally they stand to lose the interest they would otherwise earn on their loan, but this may be considered preferable to the much higher losses if business begins to fail. In short, banks may be following a policy of safety first, which can tend to upset the effect planned by the CBN when it used Open – market Operations in the first place.

A short rule of thumb helps to determine the general effect of open market operations. Working in one direction, open market operations may possibly influence the level of demand deposits, working in the other direction they certainly influence that level.

Which is which? When the central bank adds to bank reserve by buying securities on the market, deposit expansion is possible depending on the reaction of commercial banks and their customers who may wish to borrow from the banks.

On the other hand, when the CBN reduces banks reserves by means of selling securities on the open market, then deposit contraction is certain as banks are, of course, legally obligated to meet reserve requirements for demand deposits. Even here though, there may be some delay in the contraction process because banks must be holding on to excess reserves at the time this contraction policy is implemented. If this is so, sales of securities on the open market will have to continue until the whole of there excess reserves are eaten up. Only then will banks find themselves under the necessity of reducing their loans and hence the level of demand deposits in the banking system.


With low discount rate banks are encouraged to borrow and can avoid contacting their loans or may even so increase their reserve that they can raise their level of lending.

There is first usual obligation to all of this. A high rate may very well discouraged borrowing from the central bank of Nigeria, that is not demand. But consider a low rate – even one, which is fairly near, zero. Will this stimulate lending by the banks if they find themselves in a very conservative wood due to the depressed condition of the economy? The chance is, that with business poor and prospects dim, bank are simply not interested in extending their current level of lending, and there is the concurrent factor of work that businessmen will not be too excited about borrowing during bad time. Thus the discount rate too has its problem during a time of depresses economic activity.

There is another difficulty with the discount rate. In spite of the great important of this device in many countries and particularly so in Nigeria, it has turn up against a psychological banner. On the whole, Nigeria bankers do not like to borrow from the central bank. many bankers never borrow at all from that source, and large substitute market thereby avoiding the central bank and its discount rate policies altogether. The reason for this is largely the reluctance of banks to put themselves in a position of dependence on the central bank; a sort of “we ‘d rather go our own way” attitude.

This resistance has a great deal to discouraged the importance of the discount rate in Nigeria monetary policy. It usually has a very small actual impact on the size of the nations money supply.


The shift by the central bank of Nigeria from the use of direct controls to indirect controls since 1987. first the disadvantages of indirect controls, which together constitute the reason for shifting to indirect controls will be outlined. The policy instruments and techniques of indirect approach have already been treated in earlier sections so no further treatment will be given here. Also the difficulty of shifting to indirect controls due to the absence of certain preconditions essential to its successful implementation will be highlighted. Then a summary of the measures, taken to cause these preconditions, while simultaneously introducing elements of the indirect control in phase will be given. A change over from strictly regulated financial system by the less developed countries of Asia, Latin America and Africa towards a move liberal, market – oriented approach has gathered momentum in recent years. In part, this has been indirect response to external pressure from institutions such as the international monetary funds (IMF) and the world bank and has infact been motivated more generally by the search for a more effective way to mobilize domestic and international resources and to increase the efficiency of their utilization (Linden cart – Johan 1990).

Efforts so far made to deregulate the Nigeria economy under the structural adjustment program (SAP) introduced in 1986 has significantly influenced developments in the financial sector – deregulation of the financial sector has taken the forms of simplification of the format for the sectorial credit allocation decontrol of bank deposit and lending rates, introduction of the auction system for dealing in treasuring instruments and liberations of problems for establishing new banks. This step is the indirect approach to monetary central against the direct approach which realizes the imposition of credit on banks by the monetary authorities (Ahmed, A. (CBN)1991).

From the third quarter of 1992, the central bank began to emphases on the direct instrument of monetary control and more cautiously but steadily towards fuller dependence on the use of indirect instruments (Oguma P. A. 1991). With effect from the first of September of that year, the bank lifted credit ceiling on all banks which met the specified performance criteria. The bank, however, maintained the use of stabilization securities, the level of which was raised progressively until march 1993 as part of the efforts to contain the large net injections of liquidity from the central bank I financing of the deficits of the federal government.


The negative effects associated with prolonged use of credit ceilings which are intended to be mitigated by indirect controls are summarized as flows (Oke, B. A)

1. The banking industry becomes less competitive as market shares of banks become strictly determined by the credit ceiling.

2. The loss in competition in turn leads to reduced efficiency of the system as banks are allowed the same proportional increased lending irrespective of their efficiency.

3. The growth potentials of dynamic small – to – medium new banks are constrained by the imposition of ceilings.

4. Credits ceilings generate arbitrarily high lending rates and other distortions in the administration of the limited credit banks are allowed to grant.

5. Indirect control such open market operations (OMO) are more flexible in their use than direct controls.

6. Resume requirements and open market operations do not interfere with competition between banks.


The pre – conditions for the successful shift from direct to indirect controls are apply described by deuseribury, Y.S and Mc pherson, M.F, (1991) as follows:

The conditions fall into four groups – firstly, it must be possible for the central bank and the government to work out a public sector borrowing requirement and a monetary program consistent with realistic objectives for the growth of aggregate demand, inflation, interest rates and the exchange rate. The central bank staff must be able to work efficiently with the finance ministry and international agencies in designing such a monetary program.

Secondary, the central bank must be able to control the monetary base. To do so it must have the appropriate legal and regulatory powers and the ability to enforce its regulations. As the same time, there must be a competitive inter – bank market as well as markets for short – term securities. The central banks have to have an information system, which provides timely data on banks resources and money market conditions. Its staff also needs the skills to implement the central bank’s reserves management objectives through day-to-day operation in the money market.

Thirdly, there has to be an effective transmission mechanism for monetary policy which, if capital is to be allocated efficiently, should be based on active competition among operators in the financial competition does not subject financial system to unwarranted system risk, bank supervision must be enough to avoid major financial failure.

Fourthly, the central bank and the government (and potentially, the donor community) have to make special efforts to regenerate confidence in the financial system. Parallel markets, financial disintermediation, low debtor mortality, and persistent inflation are all symptomatic of a general loss of confidence in the integrity of local financial instruments and markets. A policy of legalizing parallel market activity would also help to restore confidence.

These “pre – condition” for the introduction of an indirect system of monetary management (knowledge of the pblic sector borrowing requirement, a monetary program to guide policy, transmission mechanism based on competitive forces supported by adequate financial supervision, and a special effort to regenerate confidence in the financial system) are the minimum needed. Establishing them will not be easy, particularly in the economics which have for year been distorted by indirect controls suffered disintermidation because of chronic public sector deficits, as a means of collecting credit and foreign exchange beyond the reach of the state, and experienced a progressive erosion of debtor morality and investor confidence.


From the above discussion, it is clear that the movement to the market oriented system of indirect monetary control from a rigid regime of direct control will not be easy. It will involve taking considerable preparatory measures to improve the financial environment before the tools are implemented.

In reality, it means building a financial system, which will be more responsive to the needs of lending and borrowers as well to monetary credit purposes. This will require substantial improvement in the macroeconomics, legal and regulatory environments. As a developing economy when has been depressed for too long, it will also require broadening the range and improving the efficiency of the financial institutions and markets. In the main, the preparatory activities necessary for the take – off of indirect monetary control will focus on removing the main obstacles to the new techniques (Oduyemi S. O. 1995).

Under the rigid, administratively controlled economy, prevailing before the introduction of the structural adjustment program, the identified problems mitigating against the introduction of the market based regime of monetary management are as stated below:

1. Government fiscal deposit financing and excess liquidity: The fiscal deficit constitutes a direct injection to aggregate demand, increasing pressures on the general level of prices and external balance of payments also reliance on the CBN for the financing of the fiscal deficit of the Federal government leads to increase in monetary base and smalls the levels of excess liquidity in the banking system. However, a high level of excess liquidity is inconsistent with the principle of resources system and the effective use if resource requirement and open market operations.

2. Harmonization of fiscal and monetary policies: Fiscal deficits of the federal government in the recent past has been out of time with monetary target largely because of improper co-ordination of the fiscal and monetary program. Fiscal imbalance has adverse consequences on the monetary base and the effective use of indirect tools.

3. Involvement banks: Following the huge size of bad and doubtful debts in banks. Portfolio of assets some banks are currently not solvent enough for the indirect controls. Insolvency undermines inter – bank confidence of non – public. Confidence in in banking is an invaluable assets, the lack of which would undermine competition among participating depositing institutions during the period of indirect monetary and credit control.

4. Statistical data: A successful manipulation of reserve requirement and open market operations will require timely and liable data on the liquidity position of banks and the factors determining the monetary base. Those data are presently available on monetary basis.

5. Training: More effort has to be made in training personal involved in the implementation of the new policy.


Different observes of monetary policy are prone to interpret the stance of monetary policy differently. It is not at all uncommon for one observe to say that monetary policy is easing up, while another will be arguing that policy is becoming tighter. How can this happen? It happens because different observes look at different indications in making judgments about the direction and force of monetary policy.

It is important to have knowledge about the direction and force of actions that affect society. The makers of policy must have same way of gauging their actions. Society in general must have knowledge of what the policy makers are doing. Indicators serve these functions. The best indicator of an action may or may not be obvious. The obvious cases are those when instruments are accompanied. (Usually significant) by indicators. A thermostat, for example, is almost always accompanied by a thermostater. Unfortunately, monetary policy is not so obvious.

How can we measure the direction and force of monetary policy? Should we look at what is happening to the GNP, or at the size of the CBN’S government securities portfolio, or at something in between? The fact that so many people disagree about the stance of monetary policy is proof in itself that no single indicator is watched.

The GNP is a poor indicator of monetary policy for several reasons. For one thing, a good indicator should measure the present stance of current monetary policy, not the eventual effect on the ultimate objective. For another, the GNP is only party determined by monetary policy other factors also play a role. These other factor may be causing the GNP to fall even though monetary policy is easing. Indeed, we would expect the CBN to follow an easy money policy if the GNP becomes too depressed. In short, the GNP may be an excellent indicator of general economic activity, but it would be a perverse indicator of counter cyclical monetary policy.

The size of the CBN’S government securities portfolio is also a poor indicator. Although it is immediately and rigidly tied to the instrument of open market operations are constantly being used defensively (although not exchange so). By definition, defensive open market operation involve no change in the immediate reserve target of monetary policy, but they do change the size of the CBN’S government securities portfolio. Consequently, the size of portfolio is a poor gauge of monetary policy.

This leaves interest rates and monetary aggregates. If an indicator is really going to indicate the stance of monetary policy, and not indicate other things, then it must be the effect of monetary policy rather than the effect of other things. On this score, monetary aggregates (money supply, bank reserves, etc.) and interest rates are both less than perfect.

The choice between monetary aggregates and interest rates thus boils down to which of those two categories is most influenced by policy action and least influenced by other factors. On this score, studies tend to support the use of monetary aggregates as a better indicator of monetary policy then the use of interest rates. The level of interest rates appears to be a less reliable indicator of policy mainly because it is influenced so strongly by non – policy credit market factors, particularly on the demand side.

The fact that he reserves aggregate serves also as the immediate target of monetary policy does not necessarily means that the choice of a target determines the choice of an indicator, or vice versa. Even if the reserves aggregate were not a target, it could still be the best indicator. By the same token, it could be that it is a better target then it is an indicator. Thus, the signal of the direction and force of monetary policy probably comes from watching changes in the growth rate of bank reserves.


The performance of monetary policy is generally measured against set target. The effectiveness of monetary policy in Nigeria depends to a extent on reducing to the barest minimum those constraints that play a big part in hampering the monetary policy measures. The adoption of the structural adjustment program (SAP) has made a modest stance in that direction between 1986 and 1989. Further improvement were made or announced during 1990 – 1991.

In order to effectively analyse the performance of monetary policy in Nigeria, this section shall be arranged in the order of effectiveness of monetary policies in the 1970’s under economic crisis (Between 1980 – 1985) under economic adjustment (Starting from 1986 with the adoption of SAP and in the ensuring years).


It is apparent from the foreign economic profile that the oil wealth in Nigeria was sudden. This therefore exposed the corresponding oil reserve to excessive and explosive spending because of the usage faced resources management problems. The oil affluence within the early years of the 1970’s culminated suddenly in unplanned revenue surplus whose effective utilization created management problems. Such problems relate to internal and external balances. (Ndekwu, 1990, oyo, 1992). The external balance problems related to balance of payment surplus both on the current and overall balance expect in 1977 and 1978 when there were deficits on both accounts. These deficits were reserved in 1979. The internal balance on the other hand related to excess aggregate demand with its corresponding rapidly increasing rate of inflation, and excess liquidity of the banking system and the economy. These problems of internal balance were largely caused by domestic supply deficiencies erratic fiscal operations of government and the rising price of import from the external sector.

Although the solution of these problems were not strictly within the purview of monetary policies, notheless, policy objective of rapid economic transformation was to be achieved in Nigeria. Against this background, it becomes economically wise for Nigeria to restrain the growth in imports and bills, and encourage savings through anti – inflationary measures as a way of achieving monetary stability.

Theoretically, direct monetary instruments needed to manage the economy are: interest and exchange rate controls; selection credit controls and credit ceilings, imposition of special deposits and the prescription of cash reserve requirements. Perhaps, this theoretical base explains why within the 1970/80-decade Nigeria ‘s monetary policy instruments were package of policies containing:

i. Interest rate variation

ii. Credit guideline

iii. Reserve requirement

iv. Exchange rate controls.

This package was reinforced by some fiscal measures as import cannot and similar direct controls on the banks which have some monetary implications (Ayodele, 93).


Nigeria’s socio – economic booming environment of the 170’s drastically changed to an economic crisis ridden environment in the 1980’s, the development arose from the gradual collapse of the crude oil price at global market due to the out glut.

Against this background, there becomes the need to stimulate production and employment, promote stable product prices and shine to achieve external and internal balance. Towards these ends, prices were initially retained. Such policies includes: the percription of aggregate credit ceilings, the use of selective credit control, the imposition of some reserve requirements and maintenance of a Lid on interest to promote increases in Nigeria productive capacity (Ojo, M. O)

As a start in the process of retracing the growth of liquidity demand pressure within the half of the 1980s, permissible aggregate credit expansion ceilings were reduced. For example, the ceilings on the bank got reduced to 79% by 1985 against its level of 30% between 1980 – 83. the guideline to merchant banks were to ensure that minimum of 40% of this loans and advances was o medium and long term nature with a maturity of not less than three years. Additionally, 20% of such loans and advances was find as the upper limit for short term projects with maturity of one year. By 1985, the imports of the economic crisis become services as the afore mentioned problem becomes worse. Thus the proportion for medium to long – term loans and advance becomes increase to 50%.

On small scale indigenous loans and advances by commercial banks were raised from 70% in 1980 to 0% in 1982 and 90% in 1984. Besides, commercial banks were expected to lend a minimum of 30% of the total deposits colleted by their rural branches to customers of rural areas. This loans raised to 40% in 1985. The minimum liquidity and cash ratios were left at 255 and a range of 2% – 5% by 1985 respectively. There was also the restoration of cash advance deposits for imports in 1982. within the 1981 – 1995 difficult period, interest rates on government debts instrument and bank deposit were controlled rapidly.


By the end of the fiscal year, it had become obvious that the 1981 – 85 macro – economic polices especially the austers dfiscal and monetary instruments had failed to stabilize the economy and stem rising inflation. There were noticeable deficiencies in public administration whose public expenditures looked as if unrestricted due to financial indiscipline. Besides, there were fiscal deficits and excessive imports bills. Against the background of the intensity of these problems, policy initiatives were needed to improve the efficiency of public administration, restructure expenditure policies, foster financial discipline, reduce the overall fiscal deficits, cut imports sharply and eliminate the accumulation of further external arrears (FRN, 1986,4).

To those ends, Nigeria adopted the structural adjustment program policies aimed at “altering and realizing aggregate domestic expenditure and production patterns so as to minimize dependence on imports, enhance non – oil export base and bring the economy back on the path of study and balance growth” (FRN, federal republic of Nigeria, 1986,8). In specific terms the fall out objectives are to:

1. Restructure and diversity the production base of the economy in order to reduce dependence on the oil sector and on imports.

2. Achieve fiscal and balance of payment viability over the period.

3. Lay the basis for a sustainable no-inflationary growth.

4. Lessen the dominance of unproductive investments in the public sector; improve the sectors efficiency and intensity the growth potential of the private sector.

5. Within its framework, SAP’s monetary program envisage that monetary and credit policies would be consistent with the targets set for the balance of payments, the increase of reserves, fiscal policies and for control of inflation. Against this background SAP’s monetary policies were articulated to stimulate the expansion of output, encourage employment opportunities, establish base for state prices and the restrvation of Nigeria’s internal and external balances (FRN, 1986:14).

Most of these instruments were couched under the assumption that inflation measures would be dampened while demand for scarce foreign exchange would be restricted under the evolving market oriented economy.

Other measures adopted and aimed at the reduction of an assured existence of banks excessive liability, an over hang that could accelerate inflationary pressures were:

i. CBN’s order on all banks to deposit in a non-interest being deposit account, the naria equivalent of all outstanding external payment arrears;

ii. The reduction of credit ceilings to sectors and enterprises;

iii. CBN’s direction to all parastatals to transfer their accounts from the commercial banks to the CBN.


Akatu, P. A. (1984): Challenges of monetary policy

since 1986.

Ahmed, A. Governor CBN (1992): Indirect monetary

control in Nigeria: problems and prospects.

Central banks: CBN – Monetary, credit, foreign trade

and exchange policy guidelines for 1993 – 1996. fiscal years of SAP in Nigeria (official documents).

CBN: Two years of SAP in Nigeria (official documents).

CBN: (1989): A review and appraisal of recent policy

measures and the unfinished policy Agenda for 1989.

Falagam S. B: Instruments of monetary policy, their

application and effectiveness in Nigeria

Lindren Carl-Toham (1990): The transition from direct

to indirect instruments of monetary policy.

Ogwuna, P.A. (1999): The control of monetary and

banking system by the central bank of Nigeria.

Ojo, M. O. (1992): The evolution and performance of

monetary policy in Nigeria.

Oresotu, F. O (1993): Implantation of indirect monetary

control in Nigeria, problems and prospects.

Oke, B. A. (1993): Review and update on the

implantation of indirect approach to monetary and credit controls.

Saumsi, J. O (1988): Genesis of Nigeria Debt problem

and preopects of Debt conversion, CBN, Economical and financial review, vol. 26, No. 2 June 1988.
















The methodology employed in stincting and collecting dates for this research were primary and secondary data collection.


Primary data collections employed include questionnaire, interview and participant observation from seminar, etc. unstructured questionnaires were employed because precise answers were required since open – ended question give the respondents freedom to guide long answers and this might prove to be bulky and lengthy and thereby difficult to analyses.


In this study, secondary data collection method employed include tents, journals, publications and dehuered speeches at courses, serious and working, in relation to the study.


Special mention should be made of the research department of control bank of Nigeria (CBN) from which relevant tests; materials and statistics data obtained and were critically examined for analysis. Interview were personally conducted with the staff of the CBN and the Nigeria deposit insurance corporation (NDIC) to extent useful information pertaining the study. The staff interviewed were mainly those involved in the examining, restuching and other measures introduced to address the problems involving monetary policy implementation in particular and financial system in general.


Questionnaires were also administered to the venues customers of CBN and bank. The various analyst and other non-banking financial institutions also respond to the questionnaire to arrive at the decision contained in this research work. Questionnaires were applied but due to the apathy with which Nigerians in particular treat questionnaire coupled with the sensitivity and confidentially of data pertaining to the topic it required that structured that structured questionnaires are employed and complete anonymity is guaranteed.



The population of the study centered on commercial and merchant banks. Some non-bank financial institutions are so involved in order to get balanced information from other sectors of the economy.

The banking industry, as a catalyst for economic growth as well as the condition for the implantation of the policy, as placed in a vantage position to promise variable information on the subject of study.



The obvious limitation comes from the apathy with which Nigeria in particular treat questionnaires. People generally do not wish to be quoted. And thus posed a problem to some exert even essence, there was lack of cooperation. Another limitation was guaranteed. So in essence, there was lack of cooperation.


Another limitation was lack of access to relevant tents and data relating to the topic (especially, recent findings) as the information is more of journals and well as update of policy measures.


However, despite the above constrains, the researcher was able to obtain desirable information which he hoped will promote further research on this topic.



In the section of the chapter, some of the policy measures earlier mentioned (in chapter one) will be further analyzed. Before the deregulation of the economy in 1986, interest rates were determines by the central bank of Nigeria (CBN). At that point market forces had no input in interest state determination. In 1987 CBN introduced deregulation of interest rates which involved the market forces determining the interest rate. This was however, abused in 1987/90 with the emergence of the finance company as interest rate hit the roof.

Consequently in 1991, the CBN introduced potential deregulation of the interest rates which setting a peg between lending and deposit rate. In 1993, however, full interest rate regulation was adopted by the CBN the interest problem was that real interest rate become negative. This is because while inflation hovering around 80 percent interest rate was administratively fined at 21%. This is not withstanding the official foreign exchange market (OPEM), which was exchanging at N82 per dollar.

By August 1996, the monetary authorities recognizing the advise impact of the fined in fast rate on investment, decided to deregulate interest rate at once again.


This measure is aimed at ensuring the priority accorded the growth sectors of Agricultural and the manufacturing industry the allocation of credit with a view to stimulating growth in the no – oil sector.

The sectoral percentage distribution of commercial and central banks creditors in 1992 were as shown in table

Sectoral distribution of commercial merchant banks credit for the year 1992.


a. Agricultural production (15.0) (10.0)

B. Manufacturing enterprises (35.0) (40.0)

1. Promoting sectors 50.0 50.0

2. Others 50.0 50.0

Total (1+2) 100 100

It is necessary to point out that allocation target to Agricultural production and manufacturing enterprises were regarded as minimal while that for other sector was the maximum.

In the sectoral allocation of bank credit in 1994, increased priority was given to agricultural and industrial production. A new impetus was also given to exports. Thus, the sectoral percentage distribution of commercial and merchant bank credit in 1994 were as shown in table.


A promoting sector

a. Agricultural production (18) (13)

b. Manufacturing enterprises (42) 60 (45) 58

c. Exports 10 12

B. Others 30 30

Total (A+B) 100 100

In the 1996 fiscal year, CBN commercial a gradual phasing out of sectoral allocation of credit. In other words, effective from 1997 banks can now allocate credit to any sector of the economy without complying to any minimum allocation (as shown in the previous years above).

However, CBN intends to empty moral decisions in ensuing that banks allocate funds to the desired sector of the economy.


Stabilization securities is a direct policy measure adopted by the central bank to mop up the excess money in circulation. This criteria puts banks in a parickly position since it involves an automatic debit of their accounts with the CBN.

The suspension of the issuonce of new stabilization securities in march 1992 was a deliberately policy decision to send positive signals to the money market with the movement to the market – based system of monetary control and in recognition of the adverse side effects associated with their use as a policy instrument.

1994, this instrument was retained only as a “fall – back position” to argument the other instrument should be the need arise.

During the 1997 fiscal year, CBN began the gradual withdrawal of the stabilization securities. Accordingly, banks whose accounts were debited with the stabilization securities were reimbursed by crediting back their accounts. The central bank believe that the measure will finally be replaced by open market operation (OMO).


In pursuit of the government policy on rural banking, banks are required to lend a certain minimum percentage of the deposit mobilized in the rural areas, to borrowers in the rural areas. This was 30% in 1981, and increased to 45%.

The policy is intended to accelerate the economic growth of the rural areas and to spreads the banking habit and development in the country.


This policy was intended to accelerate the business opportunities of indigenous borrowers especially during the indigenisation scheme. The guideline stipulate minimum credit that must be extended to indigenous borrowers. In the year 1994, this was raised from 50% to 90%. It also stipulated that at least 16% of the 90% must go to small – scale enterprises wholly owned by Nigeria.

Presently, at least 20% of bank loans and advances must be to wholly owned small – scale enterprises. For this purpose, a small – scale enterprise is defined as an enterprises whose total cost, excluding cost of land but including working, is above N1.0 million but does not exceed N10 million.


The prudential guidelines as spelt out in CBN circular No. BDS/DO/23/VOL. 1/11 of 7th November 1990 constitutes part of the set criteria for the evaluation of banks performance by the regulatory Authorities in accordance with international standards. Issues highlighted in the guidelines include the provision for non performance facilities, credit portfolio, classification of other assets as well as information on off balance sheet engagement.

The prudential guidelines were introduced in 1990 and are aimed at among other things, at compelling banks to make adequate provisions for bad doubtful debt underlying the insolvency of banks.

In order to attenuate the adverse effect of the implementation of the guidelines on banks’ balance sheets the CBN subsequently allowed banks to write off accumulated bad and doubtful debt owner a phased period of four years. Under the guidelines, a facility is regarded as performing if interest and principal repayment are made in accordance with the agreed terms.

Where interest or principal repayment is outs tending for 90 days, above, but below 180 days, this should be classed, as standard and provision for 10% should be made from profit. If interest remains outstanding for 180 days, it is regarded as doubtful and 50% provision should be made where interest/principal outstanding is up to 360 days and above, it is regarded, as cost and 100% provision should be made.


The rural banking scheme introduced by the central bank was designed to stimulate bank expression into rural communities. A number of concessions were provided for the banks including,

i. Exclusion of credit extended in a rural branch from determination of bank’s adjusted capital ratio to its loan and advances.

ii. A minimum of 45% & set off of capital cost on a rural bank in the year of expenditure.

iii. Monopoly of banking service for reasonable period in the rural center of branch location.


Under the deregulation stance of the structural Adjustment program (SAP), the determination of the narrow rate had been subjected to market forces by CBN. There had been experimentation employing several techniques in determining exchange rate. On march 1992, a policy of complete deregulation of the foreign exchange market (FEM) was announced in response to the emergency of a large parallel market premium and abuses of many operators.

For instance, when the central bank introduced the autonomous fund, banks abused the exercise, obtaining funds from the official market and directing to the autonomous services making large margin. The inability of CBN to stem out this ugly development early was regarded in many quarters as weakness on their part.

However, in 1995, the Autonomous foreign exchange market (AFEM) was introduced. Under the arrangement, CBN intervenes at various times in the year at a rate very close to that of the parallel market. The development saw the end to the diversion of funds from official to autonomous serves by banks thus stabilizing the foreign exchange as no reckless demand for forex manifested. This method is retained in the current fiscal year.


This involves the use of the power of persuasion to influence the lending operation designed by the monetary authorities. It does not involve the issue of official directories. The Governor of central bank merely uses his position to persuade and appeal to the banks to exercise restrains in credit expansion, under an inflationary situation for instance.

Although here is no legal compulsion on the part of the commercial banks to conform with official desires, they generally do so for fear that the central bank may use its statutory powers to force them to behave accordingly. Banks generally want to maintain as much as cordial relationship as possible with the central bank and hence do allow them to be influenced by moral suasion.

Finally, effective from 1996, the CBN has adopted more of moral suasion as an instrument of monetary policy implementation. This is the spirit of deregulation of most importance is the phasing out of the sectoral allocation and the use of moral suasion to achieve the same objective.

Also, the gradual withdrawal of the stabilization securities and introduction of OMO where moral suasion has also been intensively employed. It is believed that instrument will become relevant as CBN moves form the direct to indirect policy measures.


The hypothesis earlier stated will be tested by analyzing the result of the questionnaires administered, 55 representing 92% of the sample population responded.

Hypothesis 1: “there are presently inherent problems in the implantation of the monetary policy in Nigeria by CBN”

Findings: of the 53 respondents, 50 or 90% stated “certainty yes” that there are inherent problems in policy implementation. 3 or 5% stated “certainty No” while 2 responded that they cannot say.

Result: this conforms with the researchers hypothesis that inherent problems on policy implementation exist. The findings can be represented diagrammatically as follow:


Certainly Yes 50 91% 327.27

Certainly No 3 5% 19.64

Cannot Say 2 4% 13.09

55 100% 360.00


This project has traced the evolution of Nigeria’s monetary policy and its performance since the early 1980’s to provide a background to the review, if discussed some theoretical aspects of monetary management, the objective of monetary policy, and the instrument of monetary policy.

The highlights of the Nigeria economy of the 1970s were the growing importance of oil, the expending role of the public sector in the economy and the large dependence in the external sector. Despite the fairly impressive economic performance of the period, some economic problems such as growing fiscal pressures, assumed more services dimension in the prevailing circumstances, monetary management increasingly faced difficulties arising largely from the weaknesses of the control framework and the large divergence of fiscal operation from the set monetary and credit targets.

The oil boom of the 197o’s came to an end in the early 1980s. consequently, the development strategies which were considered appropriately during that period become inappropriately under the environment characterized by substantial reduction in oil export earning and reserves. Rigorous economic controls were mounted to stem the deterioration in the general framework. Monetary policy applied more vigorously the credit ceiling. Selective credit controls and regality on indirect rates.

In spite of these actions, monetary expansion was very rapid particularly in 1980 when temporary oil boom occurred, while large monetization of oil spured monetary growths in 1980. it was introduced by high domestic credit expansion between 1981 and 1985. compliance with the credit ceiling and sectoral credit target was unsatisfactory. Not surprisingly, the economy faced recessionary trends between 1980 and 1985. the growth in output was negative accompanied by labor leader change and a high rate of unemployment. Inflationary pressures were sustained while balance of payment deficits were becoming more frequent under a specter of visory external debt burder.

The current problem of monetary policy were largely a carryover from the previous decade and these included the apparent inefficiencies of the monetary control framework based on direct instrument and government fiscal operations especially the increased financing of fiscal deficit by the central bank. the structural Adjustment program (SAP) which was launched in July, 1986 brought with it a renewed philosophy of economic deregulation that would lead to the elimination of price distortations and a resurgence of rapid growth in the non – oil sector. The basic instruments of this new strategy were the adoption with the liberation of the external trade and payment system, greater reliance on market forces in the determination of rice and rationalization of public expenditure program.

Monetary policy, though having the same over all objectives as before was expended to play a unique role in restoring economic stability. In order to reduce credit expansion by banks, credit ceilings were reduced and backed up liquidity mopping measures such as the withdrawal of all deposits on outstanding external payment arrears and public sectoral credit flexibility in their credit operation, while in August 1989 all controls on interest rates charged by banks were removed.

Despite the good intentions of monetary management domestic liquidity expand substantially during the period, especially in 1988 and the main source of increase in aggregate bank credits to credit ceilings and sectoral credit guidances was very poor.

Fully economic recovery could not be achieved within the short span of the SAP even though its impact in light of the monetary developments was some extent positive in relation terms. Nevertheless, the problems of monetary policy appeared to have persisted in so far as the fundamental causes had not been removed. The monetary targets were not being achieved, been used over time it become more difficult to enforce compliance particularly as frequent charges were made in the composition of credit and timely data were not usually available. Also the sectrol credit guidelines were not usually applied by banks and indeed the end use of the credit could not be guaranteed.

Above all, monetary policy did not achieve the type of synchronization with fiscal policy as emisage in the monetary control framework. When fiscal operations divided from the targets, monetary developments could not uphold the underlying assumptions and hence, domestic price stability and external equilibrium which are important objective of monetary policy could be assumed.

Under these circumstances, a deliberate attempt would have to be made to imprve the efficiency of monetary policy in the 1990s. Towards this general direction, the plan to shift to the use of indirect monetary tools was formally announced early in 1991. but apart from the liberation measures adopted since 1986, especially the deregulation of interest rates, some actions had been taken since early 1990 to pave way for the such indirect monetary tools. These included the widening of the definition of bank credit, the equality of treatment to all banks in the monetary control process, the redefinition of the cash reserve requirement, the reintroduction of CBN stabilization securities for mopping up liquidity and the exercise of bank restructuring and other reforms embracing the increase in the paid reforms embracing the increase in the paid – up capital of banks, the introduction of the risk – weighted measure of capital adequacy. Prudential guidelines and uniform accounting standards as well as the promulgation of the CBN and the bank and other financial institutions degree (No. 24 & 25) of 1991.

The movement towards market based instruments of monetary management in a developing economy is unique and since financial markets are not fully developed, it is appropriate to ask whether such techniques can be effectively applied.

However, on of the lesson of recent financial liberation measures world – wide is that such measures do infact foster the development of eh financial market while consequently assist in the application of the financial instrument. The available evidence seems to suggest that the Nigeria financial system possess the critical minimum conditions for effective use of the not fully met there is scope for improving the situation.


Highlighted below are source of the recommendations armed at ensuring more effective implantation of the CBN monetary policy in Nigeria.


If greater autonomy is granted to CBN this will enable the central bank to respond to policy issues faster and also discharge its primary responsibilities more effectively.

Greater autonomy here does not mean absence of control as to central bank of any country is completely independent. The researcher believes that autonomy in areas of monetary and fiscal policy instruments will ensure effective discharge of its (CBN) responsibility, and also ensures that no lag exists between policy pronouncements and implantation.

The direct transfer of CBN to the presidency is a positive development should move beyond that by giving the CBN instrument autonomy. Specific mention must be made of terminally distressed banks awaiting liquidation. Despite CBN recommendation that they should be liquidated since they are more drain on the treasury, the federal Government is just to respond.


The CBN is being called upon to perform too many assignments, most of which fall outside its mandate. Its typical example is the rertail banking function of CBN. The activity has tended to reduce CBN’s concentration on its primary responsibility.

The CBN should be divested to banking activities while it contrives to pay the role of banker to banks. Though this, the human and material resources devoted to those services could be better employed.

In the 1999 budget, the following provision has been made concerning retail banking

During the 1999 budget year the central bank of Nigeria shall cease to operate all commercial banking business. However, for reasons of safety and security and in view of the fact that CBN is the fiscal agent of government. CBN will continue to maintain all accounts which relate to revenue collection as well as the main accounts of the government. To ensure orderliness, the transfer of the accounts will be placed over a period of six months, namely from 1st January to 30th June 1999. It is expected that by 30th July 1991, all customers would have opened accounts with the selected banks. There customers includes federal ministries, parastatals, Extra – ministential departments, state ministries and parastals, all local government. It also goes on to say the government has selected the banks to perform there functions and that banks will be designated for the various government agencies and appropriate guidelines will be issued accordingly.

Hopefully, this measure that has been introduced into banking operations will have a positives impact on the CBN at least to some extent to enable it carry on its immediate functions.


The conduct of CBN’s monetary policy has been impaired by excessive deficits financing. Over the years, the government has resorted to borrow from the CBN through ways and menus advances. This has created inflationary position through deficit financing.

The researcher believes that rather than resorting to ways and menus advances, government should borrow from the private sector by floating short and long-term treasury instruments.


The present foreign exchange policy of government has witnessed remarkable success due to the stability records so far. The stability gas now translated to downward movement in prices, a reversal of the belief that in Nigeria anything that goes up hardly ever comes down.

However, there are still leakages in the management rate. It is believed the wide margin between the official and AFEM rate has resulted in the diversion of finds meant strictly for government transaction and sold back to the black market. This has created serious distortions in the system.

It is therefore recommended that both rates should be merged if the success already achieved is to be consolidated.


In this present high technology computer age, for any policy measure to be effective, it must be backed up with adequate computer network.

Although, the CBN has computerized most of its operations, there is still response lag arising from the slow pace of computerization. Mention should and release, response, to banker’s requirements, all of which militate against efficient policy implementation.

CBN should therefore keep pace with modern technology and ensure that those issues are promptly addressed.


Dear sir / madam,

The following questions have been deigned to guarantee pertinent data for my research work. The information given are purely for academic purposes and shall be treated confidential.

Please tick as appropriate in the bones provided. Where sentences are needed, make them as brief as possible.

Thank you for anticipated corporation.

1. Do you believe that there are problems in monetary policy implementation by central bank of Nigeria (CBN)?

a. Certainty yes b. certainty No

c. Polity time d. cannot say

2. What do you consider to be the major policy thrust of control bank?

a. Monetary and credit policy

b. Fiscal policy

c. Others please specify.

3. What is the major tool of central bank of Nigeria in monetary policy implementation?

a. Direct approach b. indirect approach

c. Combination of ‘a’ and ‘b’

d, others, please specify

4. If your answer in (1) above is “certainly yes”, what do you think are the major problems of monetary policy implementation by central bank of Nigeria?

a. Government fiscal indiscipline

b. Bureaucracy in CBN

c. Lack of autonomy to central bank of Nigeria (CBN)

d. Others, please specify

5. Which of the following will you rate as more effective in monetary policy implementation?

a. Direct control b. indirect control

c. Others, please specify

6. Do not think monetary policy implementation by central bank of Nigeria (CBN) has become effective with the autonomy than when it was under the ministry of finance?

a. Certainly yes b certainly No

c. Cannot say

7. D you think inadequate money market instrument have reduced the positive impact of policy implantation in Nigeria?

a. Certainly yes b. certainly No

c. Partially d, cannot say

8. Rate in order importance (by scorning 5 to the highest and I to the lowest) the major monetary policies of central bank of Nigeria (CBN).

a. Credit ceilings

b. Indirect rate regulation

c. Secretary allocation

d. Reserve requirement

e. Open market operation

9. Rate in order of importance the things you would want in order to improve monetary policy implantation by central bank of Nigeria (CBN)?

a. More market approach

b. More controlled approach

c. Widening money market instruments

d. Improving infrastructure facilities

e. Giving more autonomy to CBN

f. Government fiscal discipline

Monetary Policy – Problems Of Implementation By The Central Bank

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