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Bullion

Keywords

Exchange rate policy, Exchange rate volatility, Nominal exchange rate, Foreign exchange market, Nigerian economy

Abstract

The motive behind initiating an exchange rate policy, an integral element of monetary policy, is to preserve the value of the domestic currency, maintain favorable external reserves and ensure the realization of price stability in the domestic economy. The pursuance of these goals is to ensure external balance without compromising the need for internal balance and macroeconomic stability. It is important that the monetary authority, in its bid to designing an appropriate and sustainable exchange rate policy framework, addresses issues that are fundamental to the introduction of the policy itself. This paper discussed the challenges of exchange rate volatility management in the Nigeria economy in maintaining international competitiveness and nominal anchor for domestic prices. The paper reveals that the In addition, the increasing openness of the economy under the impetus of globalization also challenges the CBN to adopt a more skillful approach to the management of floating exchange rate of the Naira; otherwise it may cause the depletion in country's external reserves. It is however, expected that an effective management of the current exchange rate policy will help to further strengthen the value of the domestic currency and enhance the confidence on the exchange rate system. Although, the sustainability of the WDAS is an ambitious one, it is however abound with attendant challenges for which the CBN must prepare for thoroughly. The impressive performance of the current exchange rate policy gives the confidence to state that the CBN and other stakeholders are quite prepared to confront these challenges with determination and sincerity.

Author Bio

The author is a staff of Central Bank of Nigeria.

Publication Title

CBN Bullion

Issue

3

Volume

30

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