Monetary policies: Open Market Operations explained in lay terms

As we have discussed the meaning of monetary policies in a previous post (Monetary policies explained in lay terms), here we will discuss about the measures with which the government through the CBN carryout their policy of increasing and decreasing the amount of money in circulation. One of such means is Open market operations.
In a previous post (There is an investment Opportunity available in Nigeria now), I told you about investing in Federal government bonds and how the CBN hopes to use this means to withdraw about 1 trillion naira from circulating in the hands of people… well that is open market operations at work.Open market operation is simply the buying and selling of securities (certificates of financial value) in the open market. The way it works is that if the CBN wants to reduce the amount of money circulating in the hands of people, they sell government bonds to people. People will like to buy these bonds because it is a risk free investment. When people buy these bonds, the CBN collects their cash, and issues them a certificate showing the amount of money that government is owing them. This is a CONTRACTIONARY monetary policy.
On the other hand, if the government wants to put more money into circulation, they will buy back those certificates they gave to people when they bought the bonds. In order to encourage people to sell their bond and collect money that will go into circulation, the CBN will buy the certificates at a price higher than what was used to buy it by the people in the first place. In order to gain the profit that will come from it, people will decide to sell. Thereby returning the certificates to the CBN and collecting more money that will eventually start circulating in the country. This is an EXPANSIONARY monetary policy.
DUE TO THE FACT that after the monetary policy meeting held in March Nigeria is right now selling government bonds to the public, you can now successfully predict the type of policy the CBN is adopting this year….. yes, the CBN is adopting a CONTRACTIONARY POLICY. The CBN is trying to reduce INFLATION.
NB: MONETARY POLICY MEETING is a meeting where the top officials in the CBN come together to decide the type of policy to adopt for the year, whether expansionary or contractionary.
Next we shall talk about lending rates. Drop your comments below.