Revisiting a policy of currency devaluation in african countries. The user has requested enhancement of the downloaded file. Jun 14, 2016 nigerias central bank said it will allow the naira exchange rate to be marketdriven, setting the stage for a devaluation of as much as 36 percent when a new trading system comes into effect. Currency devaluation may be a laudable economic tool in the developed economies. In short, the structuralists argue that the devaluation will worsen inflation, in this sense. Such a level may be reached during 2021, but the risks of this happening in 2020 are low, he stated. Nigeria is finally down to what seems likes just two exchange rates. Home business proffering solution to smes and devaluation of naira. Devaluation of currency is a macroeconomic fiscal policy that bothers on. Nigerian naira to remain stable at the foreign exchange market in 2020, analysts have predicted. Its currency adjustment, not naira devaluation, says cbn.
Impact of devaluation of naira in the nigerian economy. Nigerian naira tumbles 30 percent after peg removed reuters. Jpmorgan said it expected nigeria to devalue its currency by around 10% against the dollar by the end of june after a sharp oil price tumble ramped up. Jun 25, 2010 the naira is the nigerian form of currency. Nigerias central bank finally throws in towel on naira peg. The naira devaluation debate has been on in the last 23 months.
The naira devaluation will lead to a chain of reactions, many of which may not have the appropriate results, because the nigerian economy mainly depends on oil. Devaluation of the naira in the past never led to reduction in trade deficit, as imports have continued to rise in response to the countrys weak disposition towards research, development. Jun 28, 2016 traders expecting nigerias currency devaluation to trigger a rush of cash into africas largest economy are rapidly concluding that the nairas 30 percent drop wasnt enough. Once the market peg is removed on monday, the value of naira will crash on international forex platforms. People who have houses, lands, stocks, domiciliary accounts, foreign bank accounts and so on are the ones who would hardly feel the pain of naira devaluation. Devaluation is the deliberate lowering of the exchange rate while revaluation is the deliberate rise of the exchange rate. Pdf currency devaluation and nigerian economic growth. For the last two years, naira has managed to lose double its value in relation to the dollar two years ago you could buy one dollar at the black market for n186 today, you can purchase the same dollar for n365. On devaluation of the naira the guardian nigeria news. Essay about effect of devaluation of naira on price level.
The naira devaluation crisis can be traced back to the massive crash in oil price in 2015 and shocking discovery that theres no cash in the nations reserve. Buhari bows to imf pressure, to devalue naira 290 to. Central bank of nigeria cbn governor godwin emefiele are not relenting. According to the graph below, the currency fluctuation appears to lead to naira depreciation. Recently, with the spiralling decline in the price of crude oil in the global market, there is a renewed call by the imf and some experts on a further devaluation of the naira. However, there are different schools of thought with divergent explanations of how devaluation improves or dampens a countrys economic fortune. Can the economists in the house enlighten us on naira devaluation, the implications and the ripple effects and why the president is reluctant in doing a simple language pls. Devaluation of currency is a macroeconomic fiscal policy that bothers on deliberate reduction in the value of home currency with the aim of maximizing gain in trade able items aiya, 2014.
This paper explores that available way forward to the controversial debate on the effect of naira devaluation and justification for. Analysts rule out naira devaluation in 2020, say cbn may. Jun 19, 2016 nigerias naira is expected to lose around a third of its value when market trading begins on monday, bringing to an end the central banks muchcriticised fixed exchange rate system. Open letter to buhari over planned naira devaluation. Devaluation of currency became popular in nigeria when babangidaled administration in 1986 instituted the. Ninety percent of her export is made up of oil and only about loyv is made up of non oil. Analysts at united capital see the cbn harmonising the naira rates rather than devaluation this year. Some economic considerations for nigerian currency devaluation 1.
In the opinion of aiya 2014, devaluation of currency became popular in. Exchange rate, devaluation, inflation rate, manufacturing outputs. I dont like the returns i get from the cbn concerning the devaluation of the naira. Devaluation devaluation is the process by which a country reduces the value of its own currency in a fixed exchange rate system thereby making its currency weaker. To put in a more appalling way, worth less than that of others. Pdf the implication of naira devaluation to the nigerias. Businessworld analysis of the exchange rate and devaluation. In malawi, a 71% devaluation of the kwacha in 1994 diminished the dollar value of total commercial bank credit by 60%. According to imf and world bank, devaluation is referred to as instrument for fiscal equalization and stability, particularly in the developing nations where several countries are indebted to these financial institutions. In this paper i analyze the effects of devaluation on gdp per capita growth in ethiopia using time series data from 1980 to 2010. Businessworld analysis of the exchange rate and devaluation several economic theories posit that devaluation will most likely improve a nations trade balance.
Devalued naira too hot for traders seeing further currency slide. The impact of devaluation of naira on nigerias balance of payments abstract the objective of this study is to access the impact of devaluation of the naira on nigerias balance of payment. If the current trend continues, it will truly give any investor a pause before investing in nigeria because it appears that at the current rate of volatility of the naira there is no investment in nigeria that will produce a good return on investment. Nov 26, 2018 currency devaluation and revaluation refer to opposite changes to a countrys official currency in comparison to other currencies. Report on the effect of nairas devaluation on the agricultural value. Currency devaluation and economic growth the case of ethiopia abstract devaluation of currency has an ambiguous effect on economic growth of a country. The value of naira as against dollar and pounds sterling started to deteriorate, in 1970, it was a naira to 1. Nigeria faces bleak 2016 as currency devaluation looms. Sep 05, 2017 the dominant interbank rate of the naira was immediately set by the banks at almost the same level usd 1 ngn 365 as opposed to ngn 367, amounting to a significant devaluation to well below the value of the official rate still fixed at usd 1 ngn 305. Sheriffdeen tella, professor of economics, olabisi onabanjo university, agoiwoye, ogun, said the news of the naira devaluation was not surprising but was unfortunate. Pdf currency devaluation and nigerian economic growth 2000. Effects of currency devaluation on the performance of.
The number of those for or a gainst naira devaluation keeps rising. Devaluation definition of devaluation by merriamwebster. In import dependent economies, policy makers and business stakeholders are often concerned about severe consequences of currency volatility, especially. Introduction nigerian is basically a monoproduct economy. The influence of the reduction in oil price and the. Nigerian naira 19952020 data 20212022 forecast quote. Introduction according to imf and world bank, devaluation is referred to as instrument for fiscal equalization and stability. We allow for capital and adjustment costs in capital accumulation and realistic taxes in an environment with wage rigidity. N380 forex rate not devaluation of naira, says emefiele. It is actually a way of forcing out the speculators whose activities have been. Only a bakers dozen of countries did not devalue their currencies at least once during the period 194770 japan, switzerland, and the. The pressure in the foreign exchange market we have witnessed in the last few weeks was not caused by demand for foreign currency to buy inputs for production. Pdf this paper investigated the effect of currency devaluation on the economic growth of nigeria.
Naira devaluation its impact on import and export exchange rates are important economic tools because they affect the price of every nations imports and exports, as. Pdf assessing the impact of nigerias naira depreciation on. Nigerian naira tumbles 30 percent after peg removed. Before the dominance of the oil sector, particularly between 1960 1970, the balance of payment was less erratic. Devaluation definition is an official reduction in the exchange value of a currency by a lowering of its gold equivalency or its value relative to another currency. Mixed reactions trail naira devaluation the free zone channel.
The government of nigeria and other experts are kicking against the. Foreign investors and economists had called for a naira devaluation for. Jan 26, 2015 however, the only people that may remain safer from the naira devaluation action are the ones who held on to assets rather than the naira. Effectiveness of naira devaluation on economic growth in nigeria. Pdf the fundamental intent of the study is to estimate the implication and affiliation flanked by economic development and naira devaluation.
Currency devaluation and economic growth the case of ethiopia. Cbn governor, godwin emefiele, reacts to devaluation of. Jan 07, 2016 analysts and traders expect that the central bank in nigeria, africas largest oil exporter, will devalue the naira as the country deals with the blowback of the oil price crash. Since nigerias exports mainly consist of oil, it is important to separate the above relationship between oil and nonoil exports. Consequently, there have been calls for or against the devaluation of naira, with each side of the divide providing reasons for its position. We calibrate the example to the recent experience of spain. The nigerian government is thus in dilemma of the effect of further devaluation of naira as.
In other words, a devaluation is a decline in the countrys standard of living. In other words, naira depreciation or devaluation appears as a response to decline recorded in exports. A file photo of central bank of nigeria governor, godwin emefiele. Agric minister says persistent importation of commodities devalue the naira. Devaluation is a deliberate reduction in the value of a countrys currency in relation to the currencies of other countries. Exchange rates are important economic tools because they affect the price of every countrys imports and exports, as well as the value of foreign investment. Implications of the continued devaluation of the naira. This study, however, focuses on the influence of the reduction in oil price and the devaluation of naira on economic growth in nigeria. The free fall of naira to dollar has really affected importation and exportation budget and contributed to the sharp increase in commodities in the nigerian market. Proffering solution to smes and devaluation of naira. Mexico shows a similar experience from the peso devaluation in december 1994 that also transmitted a shock to the asset side of bank balance sheets resulting in a financial sector crisis that curtailed lending for development. The problem is that this devaluation will eventually curtail foreign investments in nigeria. Nigeria down to two exchange rates naira devaluation. Modeling and forecasting naira usd exchange rate in nigeria.
The g20 challenges and opportunities ahead, retrieved from. The recent history of the nairaus dollar exchange rate shows that 20 per cent overvaluation of the naira, in terms of fair value, is associated with devaluation. The naira was trading at 148 naira to the dollar when he took office in 2009 and was 164 naira by the time he was suspended from office in february 2014. This is approved for students in accountancy, business, computer science, economics, engineering, arts. The central bank of nigeria cbn said fridays decision to peg the exchange rate of the naira at n380 to the dollar is not a devaluation of the nigerian currency. Naira exchange rate depreciation and domestic inflation in. The main intention behind central banks decision is to prevent rapid depletion of the countrys foreign exchange reserves. Since the devaluation of the naira there has been an inflow of secondhand goods from abroad such as clothing, foot wear, and vehicles. For the benefit of those of us who do not know much about economy. Nigerias naira set to devalue as market trading begins reuters. However, since 1970, the balance of payment has swunged at one time or the other from a. Devaluation of naira may drive investors towards bitcoin. Currency devaluation and manufacturing output growth in nigeria. Devaluation is definitely policy movement in the right direction as the economy was.
Nigerian nairas devaluation may drive investors to bitcoin. Since 1986 there has been a devaluation of the nigerian naira. Scholarly work especially of african extraction has a bias for the fact that devaluation is an instrument being. Jpmorgan expects nigeria to devalue naira by 10% by end. This study examines the effects of the nigerian currencys devaluation and. Nigeria central bank says market fundamentals do not. N324 to a dollar in the parallel market and n199 at the official market. Get free research paper on the effect of naira devaluation on small and medium scale enterprises in nigeria project topics and materials in nigeria. Jun 28, 2016 abujaeven with the currency flexibility policy recently invoked by the central bank of nigeria, cbn, to enable market variables determine the value or otherwise of the niara, president. National and regional analysis of the impact of devaluation and foreign exchange. Bank allays fears of naira devaluation the free zone channel. Lagos, march 12 reuters market fundamentals do not support a devaluation of nigerias naira currency at.267 700 125 519 1266 317 139 681 164 1257 664 703 570 1099 531 284 297 1225 363 879 187 878 1443 1034 1441 1105 1060 1192 625 355 899 1219 403 170 227 488 1282 624 248 668 1423 198 726 1444 871 543 1441 1182 1060 205