Author: Afeikhena Jerome, David Nabena & Uzochukwu Alutu
Volume: 60 Issue No:1 Year:2018

Abstract: Nigeria's persistent exchange rate crises are fundamentally linked to oil price shocks. The most recent oil bust of mid-2014 which ignited internal macroeconomic dislocations, including an economic recession, coupled with rising inflation, saw the country recording a double-digit decline in the value of the naira. This paper examines exchange rate management in Nigeria in the periods of oil boom and bust. Findings indicate that the oil price collapse of 2014 triggered a currency crisis in the country. The devaluation of the naira exacerbated the very problem it was meant to solve, which is the scarcity of foreign exchange and a widening gap between the official rate and the parallel market rate. While a currency float remains the most efficient policy option, the country must avoid ad-hoc interventions and manage its exchange rate transparently to curtail the dominance of speculation and arbitrage in the exchange market. Complementary measures are also needed to tackle structural challenges affecting currency inflows, including the high dependence on the petrodollar and the prevalent black market.
JEL Classification: E3, 024, P42