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Bullion

Keywords

Exchange rate regime, Exchange rate policy, Current exchange rate, Foreign exchange market

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. In the quest for corrective measures to minimize distortions in the foreign exchange market, the monetary authority initiates the current exchange rate reform. the objective of this paper is to discuss the challenges of sustaining the recently introduced exchange rate regime in Nigeria. The study reveals that, the choice of an exchange rate by a given country depends on the policymaker's economic objectives, the source of shocks to the economy and the structural characteristics of that economy. However, the overall consideration for choosing a floating exchange rate is the need to safeguard against destabilizing speculations and the establishment of monopoly positions by some operators in the market. This is because the exchange rate policy is a veritable tool used for directing the trend in domestic prices along a sustainable path. It is also a valuable instrument when used in a proactive manner.

Author Bio

The author is a staff of Central Bank of Nigeria.

Publication Title

CBN Bullion

Issue

3

Volume

30

Included in

Finance Commons

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