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. That without exchange rate, the exchange of goods and services among trading partners will be focused with a lot of problems which may virtually narrow it down to trade by barter. Ever since world currencies abandoned the gold standard, many currency devaluation events have sent disruptive ripples across the globe. Currency devaluation as a policy instrument has been used in several countries both developing and developed. Effects of naira devaluation on the nigerian construction. This paper examines the effects of naira devaluation on trade balance in nigeria. Get free research paper on the effect of naira devaluation on small and medium scale enterprises in nigeria project topics and materials in nigeria. Its currency adjustment, not naira devaluation, says cbn. Jul 22, 2015 however, theres always a way out for every challenge if given proper thought and creativity. Naira is the currency denomination in nigeria and currently, the country is said to be a net importer of product as opposed to a net exporter. Nigerias naira has struggled against the dollar since the 80s. On devaluation of the naira the guardian nigeria news. Businessworld analysis of the exchange rate and devaluation.
Annual times series data over the period ranging from 1986 to 2017 was used with englegranger cointegration. Which therefore forms the central argument of the study. 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. Effectiveness of naira devaluation on economic growth in nigeria. Naira devaluation and trade balance in nigeria world scientific news. In other words, naira depreciation or devaluation appears as a response to decline recorded in exports. Impact and implication on the nigerian economy 19702014. Nigeria is finally down to what seems likes just two exchange rates. A not so brief history of the fall and fall of the.
This research critical examine the impact of naira devaluation on economic growth in nigeria. A devaluation of exchange rate increases the demand for domestic products as foreigners find them relatively cheaper. That is all the argument of pro naira devaluation, but there some errors inherent in this argument being the chief source of nigeria current economic crisis or recession. 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 study considers the exchange rate between january2012october 2015 and its effect on the construction industry in nigeria naira, dollar, pound.
Above all, increase demand at both international and local market will leads to economic growth. However, there are different schools of thought with divergent explanations of how devaluation improves or dampens a countrys economic fortune. Since 1986 there has been a devaluation of the nigerian naira. Since the devaluation of the naira there has been an inflow of secondhand goods from abroad such as clothing, foot wear, and vehicles. We allow for capital and adjustment costs in capital accumulation and realistic taxes in an environment with wage rigidity. We calibrate the example to the recent experience of spain. Jul 28, 2019 a devaluation means there is a fall in the value of a currency. Businessworld analysis of the exchange rate and devaluation several economic theories posit that devaluation will most likely improve a nations trade balance. The objective of this study is to access the impact of devaluation of the naira on nigerias balance of payment. This is approved for students in accountancy, business, computer science, economics, engineering, arts. Jun 25, 2010 the naira is the nigerian form of currency. There is a potential downside to this rationale, however. Implications of the continued devaluation of the naira.
Economic effect of a devaluation of the currency economics help. A not so brief history of the fall and fall of the nigerian. The effect of the naira devaluation on small and medium scale. Devaluation is the deliberate downward adjustment of the value of a countrys money relative to another currency, group of currencies, or currency standard. The cbn policy, it would be recalled, came as an economic and market strategy to systematically devalue the naira, following its free fall recently. Consequently, there have been calls for or against the devaluation of naira, with each side of the divide providing reasons for its position. Experts differ on currency adjustment channels television. Naira devaluation to pressure banks assets in 2020.
Nigeria faces bleak 2016 as currency devaluation looms. The effect of the naira devaluation on small and medium scale enterprises in nigeria a case study of selected mini importers in lagos state. Nigeria down to two exchange rates naira devaluation. Buhari bows to imf pressure, to devalue naira 290 to dollar. Currency devaluation and revaluation federal reserve. Essay about effect of devaluation of naira on price level. Devaluation is the deliberate downward adjustment to the value of a countrys currency relative to another currency, group of currencies. Nigerias central bank finally throws in towel on naira peg. The above intent shoot from assessing whether there are a significant affiliation and impact from devaluation to economic development proxied by gdp. Devaluation of nigeria currency causes more harm than good. Although the governor of the cnb has been doing his best to curtail the free fall of naira, i believe that more has to be done because the continued devaluation of the naira will have a far reaching negative impact than the havoc the collapse of the capital markets has ripped on the nigerian economy.
In the shortterm, a devaluation tends to cause inflation, higher growth and increased demand for exports. The study by means of classical linear regression model clrm adopts secondary data from 2000 to 2015. Currency devaluation sends food prices sky rocketing in south sudan. The cocacola system, comprising cocacola nigeria and nigerian bottling company limited nbc, has today. Impact of devaluation of naira in the nigerian economy. 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.
Trading economics members can view, download and compare data from nearly 200 countries, including more than 20 million. Nigerias central bank finally throws in towel on naira. Rubies displayed on the international stock exchange. According to the graph below, the currency fluctuation appears to lead to naira depreciation.
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. Although the naira recently strengthened against the dollar after weeks of free fall at the parallel market, mr. In modern monetary policy, a devaluation is an official lowering of the value of a countrys currency within. Since nigerias exports mainly consist of oil, it is important to separate the above relationship between oil and nonoil exports.
Second, the country can allow the devaluation of national currency flexible exchange. Aug 23, 2019 devaluation is the deliberate downward adjustment of the value of a countrys money relative to another currency, group of currencies, or currency standard. Under a floating exchange rate system, market forces generate changes in the value of the currency, known as currency depreciation or appreciation. 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. Get free research paper on the role of currency devaluation in developing countries, a case study of nigeria our project topics and materials are suitable for students in nigeria with case studies in pdf, doc. Devaluation definition of devaluation by merriamwebster. Naira devaluation will makes it competitive and leads to increase in capital flow. Ican faults calls for devaluation of naira vanguard news. Economic effect of devaluation of the currency a devaluation occurs in a fixed exchange rate. Devaluation also increases the debt burden of foreigndenominated loans when priced in.
This paper explores that available way forward to the controversial debate on the effect of naira devaluation and justification 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. Reverberating effects to economy are expected because of gamut of pronouncements like increasing monetary policy rate mpr to per cent, the adjustment of the cash reserve ratio crr for private sector deposits and others. 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. The decision taken by monetary policy committee in november 2014 on naira devaluation has generated a lot of arguments both for and. A four percent devaluation of the naira versus the dollar will put negative pressure on nigerian banks asset quality and capital metrics as they have a high proportion of. Pdf effectiveness of naira devaluation on economic. Currency devaluation sends food prices sky rocketing in. 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. Do you think nigerian naira should be devalued considering all these points.
Cbn governor godwin emefiele announced the devaluation of the naira. A not so brief history of the fall and fall of the nigerian naira. Nigerian naira 19952020 data 20212022 forecast quote. Before the dominance of the oil sector, particularly between 19601970, the balance of payment was less erratic. 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. Impact of devaluation of naira in the nigerian economy legit. Reactions have continued to trail last weeks devaluation of the nations currencynairaparticularly its impact on an import dependent economy, with nigerians watching with keen interest as to how this will bring respite to the currency, writes alexander chiejina. Free subscription get the hottest stories from the largest news site in nigeria drop your mail and be the first to get fresh news. The effect of the naira devaluation on small and medium. Imf and world bank clinching to currency devaluation as a medium. Mar, 2020 to identify the effect of naira devaluation on the construction industry. In short, the structuralists argue that the devaluation will worsen inflation, in this sense. The implication of naira devaluation to the nigerias. The cbn policy, it would be recalled, came as an economic and market strategy to systematically devalue the naira, following its.
Currency devaluation and revaluation refer to opposite changes to a countrys official currency in comparison to other currencies. May, 2016 buhari bows to imf pressure, to devalue naira 290 to dollar after months of insisting that he had no plans to devalue the naira, president muhammadu buhari has caved to pressure to change course. Devaluation is the deliberate lowering of the exchange rate while revaluation. Devalued naira too hot for traders seeing further currency slide. Pdf naira is the currency denomination in nigeria and currently, the country is said to be a net importer of product as. The incomplete discourse on the devaluation of naira.