Institutional Reforms And The Management Of Exchange Rate Policy In Nigeria

A market determined allocation of foreign exchange (FOREX) and the exchange rate is considered necessary to an improvement in the competitiveness of the Nigerian economy both internally and in its trade and financial transactions with the rest of the world. However, the realisation of the advantages of the market by an economy depends on the functional character of its markets and its public institutions. This study has therefore analysed from an institutional perspective, the evidence on Nigeria's FOREX management and exchange rate policy from 1960 to 1990. The outcome of each policy regime was compared in terms of (a) the trend in exchange rate (b) degree of exchange rate premium and (c) structure of FOREX allocation. Evidence suggests that in spite of the reform of 1986, the naira exchange rate is still not competitively determined and the allocation of FOREX remains inconsistent with the requirements for the long-term development of the Nigerian economy. Evidence also indicate that the post-reform exchange rate policy has been adversely affected by government's expansive fiscal and monetary policy. The major conclusion of the study is that given government's macroeconomic policy and the character of the markets within which FOREX was traded and the linkages between them, the naira exchange rate has little chance of covergence and as a result, the possibilities for distortions in the allocation of FOREX remain very high.