EXCHANGE RATE DETERMINATION IN NIGERIA; 1971-1990
EXCHANGE RATE DETERMINATION IN NIGERIA; 1971-1990
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Date
1992-04
Authors
UBA, Sharu Ramadan
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Abstract
The exchange rate policy introduced in Nigeria in
September, 1986, aims at establishing the naira exchange
rate based on the market conditions of demand for and
supply of foreign exchange. The objectives of the policy
are to diversify the revenue and foreign exchange sources
to the government, reduce the over-valuation of the naira
and improve the trade balance of the country. The controversies
about the appropriateness of this policy of allowing
market forces to determine the exchange value of the
currency provide the inspiration of this study to enquire
into whether Nigeria should continue, modify or abandon
the policy of depending on market forces in determining
the naira exchange rate.
This study looks at the Nigeria's exchange rate time
path and evaluates the fluctuations in exchange rate which
the foreign exchange market has produced since 1986. we
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have also used the X tests to evaluate the responses of
exports, imports and rate of inflation to the market exchange
rate over the period.
The results of the dissertation show that the depreciation
of the naira as a result of determining the
exchange value of the naira through the foreign exchange
market has failed to significantly reduce imports and boost
the exports denominated in foreign.currency. The increase
in exports is only in nominal (naira) terms. The policy
has also led to under-valuation of the naira as a result
of which the rate of inflation has risen sharply and real
income reduced. It has also led to currency speculations
and these cause constant depreciation of the naira because
of the limited supply of foreign currencies. From 1986
to 1990, when the exchange rate is determined through the
foreign exchange market, there has been fluctuations of
exchange rate and these are likely to distort long—term
development plans and discourage both domestic and foreign
investments.
As an alternative to the market-determined exchange
rate, we suggest a weighted average of market-determined
rate which is to be determined through the foreign exchange
market and the purchasing power parity rate to be computed
periodically by the central Bank of Nigeria. This will
help to achieve the objectives of boosting the non-oil
exports and reduce imports with minimum rate of inflation.
There should also be more control and supervision of the
authorised dealers in their sale of foreign exchange to
customers to ensure strict compliance with central Bank's
directives on allocation of foreign exchange according to
sectoral priority.
Description
A DISSERTATION SUBMITTED TO THE POSTGRADUATE SCHOOL,
AHMADU BELLO UNIVERSITY, ZARIA, IN PARTIAL FULFILMENT
OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF SCIENCE
(ECONOMICS).
DEPARTMENT OF ECONOMICS
FACULTY OF ARTS AND SOCIAL SCIENCES
AHMADU BELLO UNIVERSITY
ZARIA.
APRIL, 1992
Keywords
EXCHANGE,, RATE,, DETERMINATION,, NIGERIA