DISCRETIONARY OR EXPANSIONARY.WHO IS THE OWNER OF MONETARY POLICY?

The conduct of Monetary Policy in Nigeria began with the establishment of the
Central Bank of Nigeria
on July 1, 1959 following the enactment of the CBN Act
of 1958, and the subsequent amendments, the latest of which is contained in
Central Bank of Nigeria (Amendment) Decree No. 40 of1999. In Part I, Section
2 (c) and (d) of the CBN Act, the Bankis authorized to promote monetary
stability and a sound financial system as well as safeguard the international value
of the national currency. Consistent with these provisions of the Act, the Central
Bank conducts monetary policy with a viewto influencing the direction of short-term interest rates, money supply and
credit as a means of achieving price stability, low unemployment, balance of paym
ents viability and economic growth.
Traditionally, the level of
a central bank’s independence determines who lays
claim to the ownership of monetary policy,
whether the central

government or the
Bank. As an institution established by statute, the central bank does not act in
isolation of the economic objectives of
the government. Government economic
programmes are designed for the overall
economic growth and
development of
the country. To achieve these programmes, government works through
established institutions charged with statutory responsibility for engagement in
the pursuit of specific tasks for the over
all economic growth and stability of the
country. The central bank therefore, is
one such institution whose statutory
mandate involves an implicit responsibility for conducting monetary policy.
While an independent central bank may
pursue its monetary
policy programme
independent of the political
authorities, such monetary policies nonetheless, are
consistent with the overall macroeconomic
goals of the government at the time.
Thus, central banks do not pursue monetary
policy as if they were a government
of their own because such polices must
be in tandem wit
h the government’s
economic programme.
The ownership of monetary policy must be seen from t
he viewpoint of the central
bank being banker to the government. A
populist government, a dictatorship or
one which has lost its bearing with t
he people nevertheless, but retains
legitimacy controls all institutions
of government and their activities and
outcomes. Thus, irrespective of the type of government, the central bank
conducts monetary policy not for itself nor
on its account, but for and on behalf of
the citizens of the country for the pur
pose of achieving macroeconomic stability
and growth through the environment created by the government. Thus, it must
need to work with and through existing civil institutions which already have
established machinery for conveying the
policy prescriptions
and for actualizing
the intents of monetary policy. Since central banks derive their mandates to
make rules of monetary policy from statutes, and the rules must be obeyed by all
the actors in the financial system, they are said to be acting
for and on behalf of
the people who are the real owners of monetary policy.
Functionally and operationally,
central banks could be said
to be the originators
of monetary policy because of
the massive assemblage of
critical technocrats in
monetary management and engineering. They also have the mandate to
supervise the execution of monetary policy with a view to achieving the overall
goals of macroeconomic management. However, based on the stated objectives
of monetary policy, the ordinary man on
the street is the
owner of monetary
policy because the policy is wittingly designed to improve the standard of living
through ensuring the attainment of low
inflationary growth,
stable prices and
creation of employment, viable balance of
payments and the overall economic
growth and development of the country.
In a globalizing world, the effects of
monetary policy have ceased to be confined to the geographical boundaries of
individual countries that is why, the international community is
interested with the
monetary policy programmes and outcomes in
every country as domestic shocks
are easily transmitted to the rest of the
world, depending however, on the size of
the economy in question.