EXCHANGE RATE POLICY IN NIGERIA SINCE THE STRUCTURAL ADJUSTMENT PROGRAM (SAP)

Author: Sali Bakare

ABSTRACT

In finance/economics, an exchange rate is the value of one currency in terms of another if it were to be converted i.e. the rate at which one currency will be exchanged for another currency. This rate crucial in any economy, especially where imports exceed exports. Nigeria’s import trade exceeds her export trade. As a result, the demand for foreign currency is always high, and due to insufficient supply, the exchange rate persistently depreciates. In the pre-colonial and pre-structural adjustment program (SAP) eras, there was no concern about the exchange rate; because, the Naira was stronger than the US dollar, and there was a fixed exchange rate system in operation. Since the introduction of SAP, different exchange rate systems like the second-tier foreign exchange, autonomous foreign exchange, retail Dutch auction system, and Nigerian autonomous foreign exchange have been used; but none yielded a desirable result and the Naira continues to depreciate. Although a depreciated local currency boosts export trade by making goods and services cheaper in the international market and increasing foreign exchange inflow, it also makes imports expensive and reduces available foreign exchange.

The paper is divided into 6 sections. The first section is the introduction, section 2 is on exchange rate policy, which reviews the types of exchange rate systems that Nigeria has undergone while section 3 discusses exchange rate objectives. This is followed by section 4, the exchange rate management under SAP. Section 5 is a review of the impact of exchange rate policy. Section 6 is the summary, conclusion, and recommendations.

Keywords: SAP, exchange rate policy, exchange rate development, Exchange rate system, foreign exchange market, exchange rate depreciation

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