Central Bank of Nigeria
Exchange Rates, Exchange Rates Convergence, Nigeria
This paper examined the relevance of exchange rates convergence in the context of a realistic exchange rate and the implementation of a successful Economic Adjustment Programme, with particular reference to external sector competitiveness and viability. The paper was unambiguous in respect of the superiority of convergence over other schemes ranging from multiple to a dual exchange rate system. A unified exchange rate system, resulting from a free interplay of market forces, eliminates waste arising from subsidies and inefficient allocation of foreign exchange. A unified rate also reduces rent-seeking behaviours that flourish under a dual or multiple exchange rate system. After an analysis of Nigeria :S- experience in Exchange Rate Management and the experiences of other countries, the conclusion was arrived at that three main factors: relative inflation rates, growth in money stock and rate of economic growth are crucial influences on the exchange rate. The paper observed that fiscal and monetary policies should be supportive of the exchange rate mechanism to ensure its stability. The empirical analysis attempted in the paper showed that, although fiscal operations of government exert the most significant influence on the parallel market premium, money supply and the growth rate of the GDP are also relevant. The inflation rate should be tackled on a sustainable basis to ensure that it does not grow rapidly and out of tune with those of trading partners countries. The rate of economic growth should also be stepped up to ensure sustained improvement in the exchange rate of the domestic currency. The paper observed further that a realistic exchange rate can be achieved through re-alignment on the basis of rational approaches or the application of market forces in the determination of the exchange rate, as is currently done under the Autonomous Foreign Exchange Market (AFEM). The paper ended on the note that monetary and fiscal policies should be reinforcing and in conformity with the achievement of sustainable exchange rate convergence.
CBN Economic and Financial Review
Obaseki, P. J. (1997). The Need for Exchange Rates Convergence in Nigeria. CBN Economic and Financial Review. 35(3), 274-297.