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Bullion

Keywords

International development, Real exchange rate, Foreign exchange rate, Fundamental equilibrium exchange rate

Abstract

Exchange rate policy plays an important role in national economic development management. If well managed, it could facilitate the achievement of macroeconomic objectives of rapid economic growth, low rate of inflation, high employment generation, buoyant balance of payment condition, and progressive income distribution. Of all economic policies, it is the most suitable policy for ensuring internal and external balances. This paper examine the economics of exchange rate management; the conceptual issues in exchange rate management in view of attaining the macroeconomic objectives for rapid economic growth and development. One of the critical issues in the management of foreign exchange is to know the main determinants of exchange rate management in the country. Many factors come to mind on this issue. In addition to 43 pressure from international financial institutions that often exert pressure on developing countries to adopt sound macroeconomic policies, external shocks also impose some serious constraints on monetary authorities. Critical among these external shocks are deteriorating terms of trade and change in international interest rates. For the current exchange rate policy to be sustainable there is need for proactive programme of economic diversification. The economy should be moved away from depending solely on oil oriented-foreign earnings to non-oil. The current diversification index with an annual average of about 1.3 is abysmally low when compared with countries such as Algeria (5.5), Egypt (about 20 in recent times), Morocco (36) and Tunisia (28).

Author Bio

The author is a staff of United Nation Development Programme,.

Publication Title

CBN Bullion

Issue

3

Volume

30

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