Financial institutions under the supervisory purview
of the CBN are the deposit money banks
the discount houses, primary mortgage institutions, community banks, finance
companions bureaus –de-change and
development finance institutions.
The supervisory function of the CBN is structured into
institutions. Banking supervision and other financial institutions.
Banking supervision department carries
out the supervision of banks and
discount houses while the other and other non-bank financial institutions
department supervises community banks and other non-bank financial
institutions. The supervisory process
involves both on site and off site
arrangements.
In line with the CBN Act, 2007 one of the principal
functions of the central bank of Nigeria is to “ensure monetary and price
stability” in order to facilitate the attainment of the support the economic
policy of the federal government, the Act provides the constitution of a Monetary Policy Committee (MPC) which will
comprise the governor as the chairman 4 deputy governors two members of the
board of directors of the bank, three members appointed by the president and 2
members appointed by the governor
The implication for the formulation of monetary policy
is that with the new mandate derived form CBN Act and the composition of the
MPC; monetary policy credibility of the bank will be strengthened. This is
because monetary policy will how be conducted in a more open and forward
looking way
Overtime,
the CBN has recognized that achieving stable prices would require continuous
resentment and evaluation of its monetary policy implementation framework to enable it
respond to the ever-changing economic and financial environment. It is against this background
that the bank introduced a new monetary policy framework that took effect on
11th December 2006. The ultimate goal of the new framework is to achieve a
stable value of the domestic currency through stability in short –term interest
rates around an “operating target”. The
interest rate, “operating target” rate
ie the “monetary policy rate” (MPR)
serves as an indicative rate for transaction in the inter –bank money market as
well as other Deposited Money Banks (DMBs) Interest Rate
The main operating principle guiding the new policy is
to control the supply of settlement balances of banks and motivate the banking
system to target zero balances at the CBN, through an active inter-bank trading
or transfer of balances at the CBN. This is warmed at engendering symmetric
treatment of deficits and surpluses in the settlements account so that for any
bank, the cost of an overdraft at the
central bank would be equal to the opportunity cost of holding a surplus with
the bank.
CONCLUSION
The implication
for the formulation of monetary policy is that with the new mandate derived
from the CBN act and the composition of the MPC; monetary policy credibility of
the bank will be strengthened. This is because monetary policy will now be
conducted in a more open and forward looking way.
REFERENCES
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Bank for
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(Pg 9)
2.
Mankiw, N Gregory
(2001) Principles of Macro Economics
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Follow-Up on
Samuelson And Monetary Policy
4.
Krugman, Paul:
Wells, Robin (2009) A Mainstream Introductory
Text In Macroeconomics 95th Ed )
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Mainsteream
Intermediate Text In Macro Economics
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Excresns Series,
St Louis Fed
7.
Federal Reserve
Education - How Does The Federal Create
Money
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Mankiw 2002
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Mankiw Money
Supply And Money Demand : A Model Of The
Money Supply
10. Krugman and Wells 2009
11. Mankiw - Money and Prices in the Long Run
12. Krugman and Wells (2009), Money, Banking & Federal
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