During the pre – Babangida administration years, the Nigerian
currency was above the dollar and at par with the pound, but now, the
naira seems to be tumbling down the abyss. Exchanging for #44 to the
United States dollar and #120 to the pound sterling in the parallel
market as at October 1994 and despite the official rate for the pound
sterling at 336 to one dollar and #68 to one pound in the official
market. The question is how did we get to this present stage? What
happened between 1995 and now?
When General Ibrahim Babangida mounted the seat, naira was
overvalued, especially as receipts from crude – oil – Nigerian main
foreign exchange earner had been decline over the years. So some thing
was to be done about the naira. Government manufacturers and other
commentators came into a consensus that the naira exchange rate should
be more realistic.
On the other hand, advocates of devaluation had a relief on 26th
September, 1986 when government introduced the second tier foreign
exchange market (SFEM) in line with the objective of SAP. As explained
by victor odozi, the CBN director of foreign currency operations “the
move was to enable education I the pressure on balance of payment”.
1.1 BACKGROUND OF THE STUDY
Naira has lost its value? Cried a house wife who went to the market
with some boundless of naira and came home with few items in her basket
and had no balance from the money she went to market with.
Today, nobody wants to use naira as medium of exchange, no body wants to counts his wealth in naira.
Some ministers in the federal capital territory receive their
salaries I dollars. In same vein, many Nigerian, if given the
opportunity wouldn’t want to be paid with naira yet there is this
obligation to every Nigerian to serve and love his father’s land. Even
some of the so – called fathers have no respect for the land. Now the
fact is that their children will come up tomorrow and would want to be
paid with dollar. Naira, which is their father’s land currency keep
Hard currency is the order of the day. Every Nigerian want to fly to
America or Europe in pursuit of hard currency. To them naira has lost
its value and it seems to be a simple truth because what naira was able
to buy in 10 years ago has dropped to a great range if compare to what
it can buy today.
Naira, of a truth has lest its value and it is consistently going down hence, my interest in this project.
1.2 STATEMENT OF PROBLEM
This study embraces or covers the area of persisted depreciation of naira in Nigerian.
For Nigerian, most of them have been living in surprise of
thunderbolt and the painful effect of a sledge hammer blew, wages have
been decrying and inflation increasing in leaps and bounds. Eating good
food has become a tough task while financing other recurrent project
like children’s school fees, hospital bills, clothing etc. things that
people should comfortably do without getting worries has become
These problem enumerated above have devastating impact on
the economy in general as it pertains to the naira exchange rate this
study will go a long way in finding their causes and provide possible
1.3 PURPOSE OF THE STUDY
Some of the major functions of money are, it serves as a medium of
exchange, services as store of value and serves as a unit of account.
Today nobody wants to use the naira as a medium of exchange, nobody
wants to count his wealth I naira, and nobody wants to store it (naira)
because of fear of lost of value as a result of its persistent
depreciation. It is also proven fact that naira is shrinking of its
value as the evidence is in the fast ad steady increase in the price of
commodities and services.
This study is designed to fine the extent of the role play
by (FEM) on the general and steady depreciation of the nation’s currency
with its associated increase in the price of goods and service in order
to find some lasting possible solution to them. The research study will
also disclose the causes of this persistent depreciation of the naira
and advice on the various avenues through which they can be alleviated.
1.4 SIGNIFICANCE OF TH STUDY
A country’s worth is dependent on it’s currency because the
international worth of a country is measured by the performance of its
currency in the foreign exchange market. This shows that the currency of
a nation is its symbol of personality.
The value of a country’s currency can be traced from the GNP of its
economy. In other words, a country’s currency is its symbol of strength.
The underlying strength in the currency is the gross national product
which include agriculture mining, manufacturing etc. the sum total of
what this country product and hold come out to show in a strong
currency. Thus a sound management of the Nigerian foreign exchange
market (FEM) will generate a reliable and stable naira rate of exchange
that will encourage manufacturers and agriculturist to invest and will
in turn leads to economic development and growth and equally brings
about a strong currency. It is a known fact, that a country runs the
risk of balance of payments unless the policy framework and management
of its’ scarce resources as regard foreign currency other wise known as
1.5 DEFINITION OF TERMS
(Fem) foreign exchange market – this is a market where bank are
allowed to source their foreign exchange from any source and sell to and
user at market determined rates.
(G.D.P). gross domestic product – this is the total value of the
goods and service produced in a country in a year plus the net income
from abroad and it is measured in monetary term.
Letter of credit – this is a guarantee that foreign importers would
get their money from the importer though the importers bank
Forex: simply means “foreign exchange”.