Economic and Financial Review


Central Bank of Nigeria


Currency substitution, Exchange market pressure, Efficient foreign exchange market, Inefficient foreign exchange market, Traditional foreign exchange, Foreign exchange intervention.


This study investigates factors that influenced the demand pressure in the foreign exchange market prior to the recent reforms. We examined the theoretical issues and empirically measured the determinants of the demand pressure in Nigeria’s foreign exchange market. We adopted a simple ordinary least square (OLS) to estimate the impact of exogenous variable on the dependable variable. We found from the empirical results that brand pressure was prevalent during the past period. From the literature, demand pressure m s attributed to a number of factors which include, among others, the high incidence of currency substitution arising from speculative trading, liquidity surfeit, high premium and inadequacy of reserves. After an exhaustive analysis n/ the regression result, it was observed that the degree of openness, treasury bills rate and information on current and past reserve level accounted for the frequent upsurge in the demand for foreign exchange in the market. Thus, the paper recommends the adoption of appropriate Nigerian treasury bills rate, building up of optimum reserves and effective utilization of available reserves, an improved export promotion strategy through export competitiveness as well as appropriate exchange rate policy as major instruments for curtailing demand pressure in the foreign exchange market.

Author Bio

Englama is a Deputy Director Sanni and Duke are Principal Economists, while Ogunleye and Isma’il are staff of the External Sector Division of the Research Department.

Publication Title

CBN Economic and Financial Review





Recommended Citation

Englama, A., Sanni, H.T, Duke, O.O., Ogunleye, T.S. & Isma'il, F.U. (2009). Determinants of demand pressure in Nigeria's foreign exchange market: an empirical analysis. CBN Economic and Financial Review, 47(2), 1-26.

Included in

Finance Commons



To view the content in your browser, please download Adobe Reader or, alternately,
you may Download the file to your hard drive.

NOTE: The latest versions of Adobe Reader do not support viewing PDF files within Firefox on Mac OS and if you are using a modern (Intel) Mac, there is no official plugin for viewing PDF files within the browser window.