Pdf effect of foreign exchange rate fluctuations on. Original research article foreign exchange management in. There are different types of exchange rate regimes practiced all over the world. Nigerias foreign exchange policy is controversial razia. After all, an exchange rate regime that looks soft to one observer may look hard to anotherwhich reflects, among. Exchange rate misalignment under different exchange. We conclude therefore that monetary policy plays a vital role in. The exchange rate has been stable for some time now, but. Policies in nigeria, by mike kwanashie, abdulganiyu garba and isaac ajilima, research paper 57 price and exchange rate dynamics in kenya. The impact of monetary policy on the exchange rate. When the demand for foreign exchange exceeds supply, the value of the naira will go up, and if exchange rate. Nigeria is mostly impacted by the level of agricultural production, exchange rate movements, money supply and aggregate demand. However, the fixed exchange rate policy was implemented using different systems depending on the. This page provides nigeria interest rate actual values, historical data, forecast, chart, statistics, economic calendar and news.
According to kinggeorge 20, the effect of exchange rate fluctuations on the nigeria manufacturing sector was set to find out the effect of exchange rate on the nigeria. Exchange rate behaviour and trade balances in nigeria. The newly introduced foreign exchange policy by the central bank of nigeria cbn will help shore up the naira, an official of the bank has said. Effect of exchange rates on manufacturing sector growth in.
Credit ceiling, sectoral credit allocation, administrative control of interest and exchange rates, moral suasion, movements of. Exchange rate policy vs exchange rate floating exchange rate value of currency is allowed to fluctuate in response to forex market dynamics demand and supply a currencys value is pegged against either the value of another single currency dollar, to a basket of other currencies, or to another measure of value, such as gold. Brexit uncertainty increased pressure on nigeria s in. The countrys currency experienced a continuous appreciation except for. An empirical evaluation of the impact of exchange rate on the nigeria economy ayodele thomas d. Exchange rate fluctuation on nige ria economic growth is an important economy metric as it reflects underlying strength and competitiveness with world economies asinya and takon, 2014. This frequent appreciation of the dollar against the naira has led to sharp drop in private domestic investment in the country see fig. It can be said that one of the factors determining the way exchange rate fluctuations affect economic growth is the development level of each countrys financial markets. Aside this also is the snail speed situation of the development of. The effect of exchange rate fluctuations on economic growth varies in different countries. Emefiele first introduced the dual exchange rates amid a severe shortage of foreign exchange after the 2014 oil price crash. In nigeria up to the time of structural adjusted programme sap, it appeared that nigerians exchange rate policy tended to encourage overvaluation of the naira, because in 1981, it was 0.
The usdngn spot exchange rate specifies how much one currency, the usd, is currently worth in terms of the other, the ngn. Information from the cbn shows that the primary objectives of exchange rate policy in nigeria are to preserve the value of the domestic currency. The balance of payments and the exchange rate anthony j. The dual system, he says, doesnt encourage investors and can encourage corruption. In a free market economy the exchange rate of a currency is determined by the interplay of supply and demand for that currency, the major objectives of exchange rate in nigeria are to preserve the value of the domestic currency, maintain a favourable externally reserve position and ensure price stability. Cbn monetary policy rate mpr 2006 2016 nairametrics. He defined a stable naira exchange rate as being of overriding importance.
The central bank of nigeria should put in place a strict foreign exchange policy control to ensure that the value of naira against other currency is properly. Exchange rate and macroeconomic performance in nigeria. The impact of exchange rate fluctuations on private. The gains of the dual exchangerate system have been had. Section ii presents data on nigeria and indonesia and compares their policies. The price level is determined by monetary policy, with an excess of money supply over modeled money demand driving price rises. Impact of exchange rate on agriculture and manufacturing. Since the release of this new policy, questions have been raised pertaining to whether this policy initiative would actually reduce the rate of exchange at the parallel market and therefore lead. Exchange rate fluctuation on nigeria economic growth. Charles robertson, global chief economist at renaissance capital in london, believes that nigeria is preparing to unify its exchangerate system this year. Impact of exchange rate fluctuation on nige rias economic growth 19812015, full project materials. The main objectives of exchange rate policy in nigeria are to preserve the value of the domestic currency, maintain a favorable external reserves position and ensure external balance without compromise the need for internal balance and the overall goal of macroeconomic stability. Effects of exchange rate fluctuations on economic growth. Official exchange rate refers to the exchange rate determined by national authorities or to the rate determined in the legally sanctioned exchange market.
The implications of the exchange rate regime and fiscal policy are discussed. The new foreign exchange policy the guardian nigeria. The cbn monetary policy rate mpr is determined by the cbn monetary policy committee periodically. The impact of exchange rate fluctuation on the nigerian. The pegged exchange rate system was the first exchange rate regime adopted in nigeria. In nigeria, the management of the exchange rate is carried out by the central bank of nigeria. An empirical evaluation of the impact of exchange rate on.
Nigeria s move from a fixed to a floating exchangerate policy editions. Makin department of economics, the university of queensland, australia keywords. Central bank of nigeria monetary policy instruments two types of instruments direct and indirect direct monetary policy instruments is characterized by the use of. Afriheritage policy working paper 2018001 africa portal. Obsession with a number exchange rate rather than the process exchange rate policy 40. Newly introduced foreign exchange policy will strengthen. Get free research paper on impact of exchange rate policy on nonoil exports in the nigerian economy 19992014 project topics and materials in nigeria. It demonstrates the need for monetary authorities to learn from past exchange rate management and come up with a monetary policy framework that complimes the existing exchange rate policy and ensures stability. Determinants of inflation, exchange rate, and output in nigeria. Nigeria s foreign exchange policy is controversial razia khan, standard chartered bank. Pdf exchange rate policy and nigerias economic growth. The effects of trade and exchange rate policies on agriculture in nigeria. Section i describes the process of adjustment to an oil boom. Exchange rate depreciation, budget deficit and inflation the nigerian experience b fy.
See diagram with arrows and the table below for the possible effect of the three global scenarios. Exchange rate policy in nigeria has under gone a good number of changes. The effects of trade and exchange rate policies on agriculture in. Get free research paper on monetary policy and exchange rate in nigeria our project topics and materials are suitable for students in nigeria with case studies in pdf, doc. Because the exchange rate regime is an important part of every countrys economic and monetary policy, policymakers need a common language for discussing exchange rate matters. Since the adoption of exchange rate deregulation policy in nigeria, the exchange rate, which is the price of domestic currency in terms of foreign currency, has become so volatile. The importance, how to, effect causes relationship, comparison, history, role, solutions are discussed. Exchange rate depreciation and the structure of sectoral prices in nigeria under an alternative pricing regime, 198689 by olu ajakaiye and ode ojowu, research paper 25. Some factors which cause variations in the exchange rate are government policy, interaction of demand and.
The main objectives of exchange rate policy in nigeria are to preserve the value of the domestic currency, maintain a favourable external reserves position and ensure external balance without compromising the need for internal balance and the overall goal of macroeconomic stability. Effect of exchange rate fluctuations on manufacturing. It has developed from a fixed parit y in 1960 when it was so lely tied with the british pound sterling. Market interest rates incorporate a risk premium, but the change in the market interest rate is a good proxy for the policy surprise, as the risk premium is unlikely to move in the short time periods used in the event. The rate is is the official benchmark rate of the cbn and the rate at which it lends money to commercial banks. It is the required amount of units of a currency that can buy another amount of units of another currency. It is however, not the intention of this paper to dwell on this. A granger causality impact assessment find, read and cite all the research. This study investigated the effect of exchange rate fluctuations on nigerian economy. The first ease of the nigerian exchange rate policy began in 1959 with the establishment of the central bank of nigeria cbn. The fixed and floating exchange eras were compared to know the exchange rate system in which the economy has fairly better. This is approved for students in accountancy, business, computer science, economics, engineering, arts. Pdf the impact of exchange rate regimes on economic.
The official exchange rate is determined by the monetary authoritycentral bank, while the market exchange rate is basically determined by market forces of demand and supply. Nigerias dual exchangerate system may be ending the. Minimum discount rate mdr had a negative influence on the banks deposit liabilities in nigeria, whereas exchange rate exr had a positive and significant influence on the banks deposit liabilities in nigeria. Towards the end of 1985, the government allowed the.
The cbn was specifically set up to manage the countrys currency with the objective of attaining a sound and stable national currency. Certain policy implications arise from this finding. Nigeria has followed in the footsteps of south africa by opting for a freefloating exchange rate regime. Following the adoption of structural adjustment policy sap in 1986, the country has moved from a peg regime to a flexible exchange rate regime. The impact of exchange rate on nigeria nonoil exports. A macroeconomic implications by tony elumelu economic theory is replete with definitions and types of interest rates. Nigeria overall economic performance since independence in 1960 has been decidedly unimpressive. Pdf on jan 1, 2017, felicia akujinma anyanwu and others published exchange rate policy and nigeria s economic growth. The importance, effect, causes, relationship, comparison, history, role, solutions are discussed. The analysis of exchange rate fluctuation on nigerias. Cbn, pwc estimates with the outlook on the oil price and level of reserves accretion usd40. What is important here is that interest rates, like other. According to analysts at the albright stonebridge advisory group, the overvaluation of the naira has made nigeria a less attractive. While the usdngn spot exchange rate is quoted and exchanged in the same day, the usdngn forward rate is quoted today but for delivery and payment on a specific future date.
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