BANK LIQUIDITY AND THE DEREGULATED FOREIGN EXCHANGE RATE IN NIGERIA
BANK LIQUIDITY AND THE DEREGULATED FOREIGN EXCHANGE RATE IN NIGERIA
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Date
1993-09
Authors
ROBERT, KEMPADE MORUKU
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Abstract
Deregulation of the naira exchange rate and the supplementary monetary policy
regime were aimed at reducing the demand for foreign exchange and boosting
non-oil exports. (CBN, 1992: No. 92/08; Abdullahi, 1987:59; FGN, 1988:21-23).
An 'excess liquidity' in the banking system was said to be an obstacle to
achieving the aims of the foreign exchange and monetary policies. (CBN, 1990:
32; Ntekop, 1992:21) Stabilization Securities were repeatedly issued on
bank deposits to mop up the 'excess liquidity'. But this left in its wake
high cost of funds, inflationary pressure, distress in the banking system,
industry capacity under utilization, volatile exchange rate regime, and
persistent demand pressure on the foreign exchange market. (Business Times,
April 12, 1993; CBN Circ. 1/3/93; Nwankwo, 1983:44; Abdullahi, 1987:
63-65; Ahmed, 1993:23; CBN, 1991:66; Olekah, 1991).
Thus this study was initiated to determine the cause - effect relationship
between the liquidity in the banking system and the deregulated foreign
exchange rate through the demand pressure on the foreign exchange market.
A quasi-experimental design was developed and multiple regression and
Pearsons (r) analyses were conducted on the data. The result of the
analysis shows that there is no significant relationship between them. The
demand pressure is inherent in the market itself and reflects the structural
problems of the economy which are monocultrual and vulnerability to
external shocks; of industry that is import-dependent, and import-substitutional.
We suggest a systematic reduction in the demand for foreign exchange
through a reduction for the need for foreign exchange by the determined
sourcing of local inputs since the demand for foreign exchange is a
derived demand for imported inputs. We a l s o recommend an i n t e r im
dual exchange r a t e system to be r e p l a c e d in the long-run with
a f l o a t i n g , market-determined exchange r a t e system
Description
PRESENTED TO THE DEPARTMENT OF BUSINESS
ADMINISTRATION OF THE AHMADU
BELLO UNIVERSITY ZARIA.
MR. ROBERT KEMPADE MORUKU
(G91 BA 7392).
IN PARTIAL FULFILLMENT FOR THE AWARD OF
THE DEGREE OF MASTERS IN BUSINESS
ADMINISTRATION (MBA).
SEPTEMBER, 1993
Keywords
BANK, LIQUIDITY,, DEREGULATED,, FOREIGN,, EXCHANGE,, RATE,, NIGERIA