VARIOUS MONETARY POLICIES THAT GOVERNMENT IN NIGERIA CAN USE TO INFLUENCE MONEY SUPPLY

VARIOUS MONETARY POLICIES THAT GOVERNMENT IN NIGERIA CAN USE TO INFLUENCE MONEY SUPPLY

INTRODUCTION

Monetary policy as the name implies is one of the major economic stabilization weapons that involve measures designed to regulated could control the supply of money, volume, cost, availability and credit in an economy to achieve some specific macro-economic policy objective. It is a deliberate attempt by the monetary authority (Central Bank) to control the money supply and credit condition for the purpose of achieving certain broad economic objective

It is also the control of money and Bank credit thereby regulating cost of credit such a way it will affect aggregate demand in a direction that would continue to the achievement of healthy balance of payment, price stability and job opportunity.

VARIOUS MONETARY POLICIES THAT GOVERNMENT IN NIGERIA CAN USE TO INFLUENCE MONEY SUPPLY

Money supply is been controlled by the government in that firm belief that its rate of growth has something to do with rate of inflation.

Monetary Policy is a key component of any pro-growth economic system and much so in developing economies such as the Nigerian Economy.

Monetary policy aims at controlling money supply so as to counteract all undesirable trends in the economy, these undesirable trends may include; unemployment, inflation, sluggish economic growth or disequilibrium in the Balance of Payments. Monetary policy may be either expansionary or restrictive.

EXPANSIONARY MONETARY POLICY

An expansionary monetary policy is designed to stimulate the growth of aggregate demand through increase in the rate of money supply thereby making credit more available and interest rates lower. An expansionary monetary policy is more appropriate when aggregate demand is low in relation to the capacity of the economy to produce goods and services. On the contrary, if the quantity of money is reduced or restricted, money income will rise slowly so that consumers spend less and funds for investment are difficult to acquire thereby decreasing aggregate investment (restrictive monetary policy).

The growth in money supply and its economic implications is therefore an issue to be thoroughly investigated. This subject has bordered the minds of Nigerian policy makers for decades. Despite the lacks of consensus among different schools of thought on its effectiveness as an instrument of monetary policy, the Central Bank of Nigeria (CBN) relies on it as its major barometer for shaping economic activities. The design and shift of the monetary measures taken by the central bank in recent times have been either expansionary or contractionary.

Expansionary policy tools have been used to increase money supply with the intent of increasing output. Contractionary policy tools have been used on the other hand to decrease money supply in the economy in order to discourage consumption thereby curtailing inflation.

Nevertheless, the Nigerian money supply process is revealed to derive more from the consolidated balance sheet of the commercial bank plus the high powered money. A policy decision based on such data might be misleading and sometimes its conceived implication on economic activities especially on inflation might equally be misleading.

CONCLUSION

            Generally, money supply could be the stock of liquid assets held within an economy at a point in time. However, several monetary aggregate which are measures of the money supply exist. The number and definition of these aggregates often differ in time and space.

In the Nigeria context, measures of money usually referred to as M₁ and the broad measure of money called M₂ is the sum of currency in calculation, including the demand sectors with the holdings of the public and private sectors with the banking system. The broad measure of money supply- 1&2 includes M₁ plus quasi money – i.e., the quantum of savings and time deposits of the public and private sectors with the banking system.

REFERENCES

 Friedman, Milton (1960). A Program for Monetary Stability. Fordham University Press.

Bernanke, Ben (2006). "Monetary Aggregates and Monetary Policy at the Federal Reserve: A Historical Perspective". Federal Reserve.

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