THE USE OF MORAL SUASION What is moral
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THE USE OF MORAL SUASION
What is moral? üConcerning or relating to what is right and wrong in human behaviour. What is Suasion? üThe act of influencing or persuading without force or compulsion.
Moral Suasion defined A Non-Global Monetary Policy ■ The influence which the central bank exercises to induce or convince banks to conduct operations in a manner that would contribute to the attainment of monetary goals but not necessarily support the profit maximizing objectives of the banks. ■ It is the monetary tool that test their persuasive ability of the Monetary Board and the governor of the BSP. ■ Also known as Moral Influence. ■ Jawboning and Arm-twisting are other terms used for moral suasion
Benefits of Using Moral Suasion to Control Money Supply 1. The use of moral suasion in supervising the Payment System q Moral Suasion is used in ensuring that payments and settlement system possess the necessary controls and procedures to mitigate risks. 2. The use of Moral Suasion to reduce bank lending
3. The use of Moral Suasion to reduce Capital Outflows q Moral Suasion is needed to discourage capital outflows 4. The use of Moral Suasion in Reduction of Savings and loan rates q Home loan bank board used moral suasion to roll back increases in rates
Limitations in Using Moral Suasion to Control Money Supply 1. Moral Suasion is not a common monetary policy tool in the developing countries. 2. Difficult to use where a large number of stakeholders are involved. 3. Moral Suasion does not have the force of laws or official regulation, which can give penalty and sanctions to erring institutions. 4. Moral Suasion is rarely used in isolation.
Examples of Moral Suasion As mode for controlling money supply: A politician may utilize moral suasion if there is suspicion that a bank or group of banks are considering changes in how they approve mortgages that could have a cumulatively damaging effect on the overall economy.
Examples of Moral Suasion Central bank officials testifying before legislative committees to explain what the bank is doing and what its objectives are, letters, and phone calls sent to those institutions that seem to be straying from central bank policies , and press releases urging the public to cooperate with central bank efforts to strengthen the economy.
How to use Moral Suasion? ü One approach is to hold private meetings with bank directors and other key officials associated with the institution, utilizing discussion as a means of influencing the directives issued by those officials.
Reference: https: //www. cbn. gov. ng/out/2016/mpd/un derstanding%20 monetary%20 policy%20 s eries%20 no%2028. pdf
