Monetary Policies: Moral Suasion explained in lay terms

Moral suasion is another method the Central bank uses in carrying out its monetary policy and control of the circulation of money in the economy. Moral suasion is more like an advice or plea. It can be that the central bank is begging commercial banks to reduce the amount of money that they are circulating or to increase it. Here no sanctions or punishments for non-compliance are given to banks, the CBN simply advices the banks to follow such a policy

with their ‘church mind’. The CBN has power over all banks in the country so the case of begging hardly arises, rather they will force you to obey or threaten to close your bank. This method is rare, it has only been applied in New Zealand, Canada and Australia but it failed in USA.

     Having discussed all monetary policy tools of the CBN(Read up previous posts) and their various outcomes at the CBN monetary policy meeting, it is clear that we are adopting CONTRACTIONARY MONETARY POLICIES this year 2016 a.k.a year of CHANGE. So when next the bank is putting you through a hassle just to get your money from the bank, just bear in mind that it is not entirely their fault, it may be partly the fault of the contractionary policy trying to reduce the amount of money in circulation. Air your view in the comment box below.