ABSTRACT
The redesign of the Naira in Nigeria has been the subject of much debate and speculation in recent years. This study aimed to examine the impact of the Naira redesign on the stability of the foreign exchange market in Nigeria and the role of the Central Bank of Nigeria in managing foreign exchange rate. A quantitative research method was employed to gather and analyze data on the subject. The findings of the study indicate that the Naira redesign has not had a significant impact on the stability of the foreign exchange market in Nigeria. The Central Bank of Nigeria was found to have a critical role in managing foreign exchange rate in the aftermath of the redesign. However, the study also highlights the importance of considering a range of factors in understanding the stability of the foreign exchange market and the competitiveness of the Nigerian economy in the global market. Future research should aim to consider a comprehensive set of factors that influence foreign exchange rate stability and involve collaboration with relevant stakeholders. The results of this study can contribute to the advancement of knowledge in the field and inform decision-making related to foreign exchange rate stability in Nigeria.
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
Currency redesign is a common practice among countries around the world and has been implemented for various reasons such as to enhance security features, promote national identity, and to combat counterfeiting (Holden, 2018). Currency redesign has been observed to have significant effects on the exchange rate, as the perception of the new currency by international investors and market participants can affect its demand and ultimately its value.
For example, the European Union underwent a currency redesign in 2002 with the introduction of the euro as a common currency. The euro currency redesign had significant effects on the exchange rate as it led to the integration of the European financial markets and increased the demand for the euro currency (Cummings, 2016).
In the case of the United States, the redesign of its currency in the 2000s was aimed at enhancing security features and combating counterfeiting (Holden, 2018). The redesign of the US currency had a positive impact on the exchange rate as it increased the confidence of market participants in the currency and its ability to deter counterfeiting.
Currency redesign can have an impact on the foreign exchange rate through several channels. The redesign of a currency can change market perception, demand and confidence, which in turn can affect the foreign exchange rate (Coker, 2017).
The perception of the new currency by international investors and market participants can influence the demand for the currency and ultimately its exchange rate (Cummings, 2016). A successful currency redesign that enhances the security and credibility of a currency can increase market confidence and increase demand for the currency, leading to a strengthening of its exchange rate.
On the other hand, a poorly designed currency or one that does not meet market expectations can lead to a decrease in demand and a weakening of the exchange rate. Additionally, changes in the level of counterfeiting can also impact the confidence of market participants in the currency and its exchange rate (Williamson, 2016).
Currency redesign can have a significant impact on the foreign exchange rate, and the impact can vary depending on the specific circumstances and objectives of each country and its currency (Soludo, 2014). A well-designed and successful currency redesign can lead to a strengthening of the exchange rate, while a poorly designed or unsuccessful redesign can lead to a weakening of the exchange rate.
Currency redesign is a common practice among countries and has been observed to have significant impacts on the exchange rate through its effects on market perception, demand, and confidence (Chua, 2016). The impact of currency redesign varies depending on the specific circumstances and objectives of each country and its currency.
The foreign exchange market in Nigeria has long been subject to various economic, political and social factors that have influenced its stability and exchange rate fluctuations. One of the recent developments in the Nigerian economy is the redesign of the national currency, the Naira (Chua, 2016). The redesign of the Naira was introduced by the Central Bank of Nigeria in an effort to combat counterfeiting and to promote national identity. However, the impact of this redesign on the foreign exchange rate in Nigeria has been a matter of concern and debate among economists and policy makers (Akanji, 2018).
The foreign exchange market in Nigeria is considered as a critical determinant of the overall economic stability and growth of the country. The foreign exchange rate affects various aspects of the economy such as trade, investment, inflation and consumer purchasing power (Akanji, 2018). The impact of the Naira redesign on the foreign exchange rate can therefore have far-reaching implications for the Nigerian economy.
Previous studies have shown that currency redesign can impact the exchange rate through psychological and market perception effects. The perception of the new currency by international investors and market participants can affect the demand for the currency and its exchange rate (Garba, 2016). Additionally, currency redesign can impact the level of counterfeiting, which can affect the confidence of market participants in the currency and its exchange rate.
The redesign of the Naira is a recent development in the Nigerian economy that has the potential to impact the foreign exchange market and its exchange rate. This study aims to shed light on the impact of the Naira redesign on the foreign exchange rate in Nigeria and to provide insights for policymakers and market participants (Akpan, 2019).
The Nigerian foreign exchange market and the value of the Naira have been subject to significant fluctuations due to a range of economic, political, and social factors. Nigeria is heavily dependent on oil exports, and changes in oil prices have a significant impact on the country’s economy and foreign exchange market (Akpan, 2019). Additionally, government policies and macroeconomic conditions, such as inflation, can also impact the stability of the foreign exchange market and the value of the Naira.
In recent years, the Central Bank of Nigeria has taken various measures to support the stability of the foreign exchange market and the Naira, including currency interventions and restrictions on access to foreign exchange (Garba, 2016). Despite these efforts, the value of the Naira has continued to face significant challenges, leading to a decline in its exchange rate.
The Nigerian foreign exchange market and the value of the Naira are subject to a range of factors that can impact their stability and exchange rate (Campbell, 2016). The Central Bank of Nigeria has taken various measures to support the stability of the foreign exchange market and the Naira, but challenges remain. It is with this background this study will analyze the impact of Naira redesign on foreign exchange rate in Nigeria.
1.2 Statement of problem
The foreign exchange rate challenge in Nigeria is a complex issue that has far-reaching consequences for the country’s economy and financial stability. One of the key challenges is the dependence of the Nigerian economy on oil exports. Changes in oil prices can have a significant impact on the country’s foreign exchange market, as oil exports account for a large portion of Nigeria’s foreign exchange earnings. When oil prices are low, demand for the Naira decreases, and the exchange rate weakens, which can lead to inflation and further economic instability.
Another challenge facing the foreign exchange market in Nigeria is inflation. High inflation rates can reduce the value of the currency and increase the cost of imported goods, leading to a decrease in demand for the currency and a weakening of its exchange rate. This can have a cascading effect on the economy, as the cost of goods and services increases, leading to reduced consumer spending and decreased economic growth.
Political and economic instability is another major challenge facing the foreign exchange market in Nigeria. Political unrest and economic uncertainty can reduce investor confidence, leading to a decrease in demand for the Naira and a weakening of the exchange rate. This can further impact the stability of the foreign exchange market and reduce the ability of the Central Bank of Nigeria to intervene and support the value of the Naira.
Limited foreign exchange reserves is another challenge facing the foreign exchange market in Nigeria. The Central Bank of Nigeria has limited foreign exchange reserves, which can limit its ability to intervene in the foreign exchange market and support the value of the Naira. This can result in increased volatility in the foreign exchange market and further weaken the exchange rate. Also, restrictions on access to foreign exchange can also impact the stability of the foreign exchange market in Nigeria. The Central Bank of Nigeria has imposed restrictions on access to foreign exchange, which can limit the availability of foreign currency and impact the stability of the foreign exchange market. This can have a negative impact on businesses, particularly those that rely on imports, and can reduce economic growth.
The foreign exchange rate challenge in Nigeria is a complex and multifaceted issue that requires a coordinated response from the government, the Central Bank of Nigeria, and other stakeholders to support the stability of the foreign exchange market and the value of the Naira. Despite efforts by the Central Bank of Nigeria to support the stability of the foreign exchange market and the value of the Naira, significant challenges remain. The foreign exchange market in Nigeria has been subject to fluctuations due to a range of economic, political, and social factors, including changes in oil prices, government policies, and macroeconomic conditions such as inflation. The recent redesign of the Naira currency has the potential to impact the stability of the foreign exchange market and the value of the Naira. However, the exact impact of the Naira redesign on the foreign exchange rate in Nigeria is unclear and has not been thoroughly researched. This study aims to fill this gap in knowledge by examining the impact of the Naira redesign on the foreign exchange rate in Nigeria.
1.3 Research Objectives
The main objective of the study is to examine the impact of naira redesign on foreign exchange rate in Nigeria, and the specific objectives are:
- To analyze the impact of the redesign of the Naira on the stability of the foreign exchange market in Nigeria.
- To assess the role of the Central Bank of Nigeria in managing the foreign exchange rate in the aftermath of the redesign of the Naira.
- To evaluate the effectiveness of the redesign of the Naira in improving the competitiveness of the Nigerian economy in the global market.
1.4 Research Questions
- What is the impact of the redesign of the Naira on the stability of the foreign exchange market in Nigeria?
- What is the role of the Central Bank of Nigeria in managing the foreign exchange rate in the aftermath of the redesign of the Naira?
- What are the effectiveness of the redesign of the Naira in improving the competitiveness of the Nigerian economy in the global market?
1.5 Significance of the Study
The research upon its completion will be beneficial in many ways. These are:
It will contribute to the understanding of the relationship between currency redesign and foreign exchange rate, which has important implications for economic stability and growth. The study will provide valuable insights into the role of the Central Bank of Nigeria in managing the foreign exchange rate and the impact of the Naira redesign on the stability of the foreign exchange market. The findings of the study will have practical implications for policymakers, as it will inform decisions related to the management of the foreign exchange rate and the stability of the financial system in Nigeria.
The study will also provide useful information for businesses operating in Nigeria, as it will help them to understand the impact of the Naira redesign on the foreign exchange market and adjust their strategies accordingly. Finally, the study will contribute to the academic literature on the topic of currency redesign and foreign exchange rate, and provide a basis for future research in this area.
1.6 Scope of the Study
Temporal scope: The study will focus on the period immediately following the redesign of the Naira and assess the impact on the foreign exchange rate in Nigeria over a specified period of time.
Geographic scope: The study will be limited to Nigeria and will focus on the impact of the Naira redesign on the foreign exchange market in the country.
Data sources: The study will use secondary data sources, such as government reports, Central Bank of Nigeria publications, and academic journals, to examine the impact of the Naira redesign on the foreign exchange rate in Nigeria.
Theoretical framework: The study will be based on relevant theories related to currency redesign, foreign exchange rate, and economic stability, which will inform the analysis of the impact of the Naira redesign on the foreign exchange rate in Nigeria.
1.7 Operational Definition of Terms
Currency Redesign: Currency redesign refers to the process of revising and updating the design of a country’s official currency. This process can involve changes to the physical appearance of the currency, such as its size, color, or symbols, as well as changes to the security features, such as watermarks or holograms, to prevent counterfeiting.
Foreign Exchange Rate: Foreign exchange rate is the rate at which one currency can be exchanged for another. It is the price of one currency in terms of another currency. The foreign exchange rate is used to determine the value of a country’s currency in the global market.
Economic Stability: Economic stability refers to the ability of an economy to maintain a consistent level of economic performance and growth over time. It involves maintaining a balance between economic growth, inflation, and employment.
Policy decisions: Policy decisions refer to the actions taken by governments, organizations, or institutions to guide and regulate the behavior of individuals and organizations within a society or an economic system. Policy decisions are made to address specific issues or problems, and to promote the achievement of certain goals and objectives.
Management: Management refers to the process of planning, organizing, directing, and controlling resources (such as human, financial, and material) to achieve specific goals and objectives.
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