IMPACT OF THE NAIRA CURRENCY CONTINUAL DEPRECIATION ON THE GROWTH OF NIGERIA ECONOMY
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IMPACT OF THE NAIRA CURRENCY CONTINUAL DEPRECIATION ON THE GROWTH OF NIGERIA ECONOMY
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Typically, a country’s currency acts as a means of commerce, a unit of measurement, and a store of value. In a complicated economy, this would be seen from a detailed examination of these functions. Typically, the only acceptable method for a buyer to pay a seller is with money.
Money is a practical means to keep wealth on hand for use at any time. However, if a currency’s value is unstable, such wealth will lose value every day. The value of the Nigerian money has steadily declined over time.
According to Lispesy (1977), currency depreciation is the decline in the free market value of domestic currency relative to foreign currencies. The focus of this study focuses on a few distinct variables.
GOP (gross domestic product) is a dependent variable, while the annual rate of currency depreciation is an independent variable. The dependent variables are the interest rate and inflation.
According to Adujie (2012), Ghana, Jamaica, and other nations have stronger currencies and more reputation outside than Nigeria. And this isn’t because those countries are more productive or have a stronger export industry than Nigeria does.
In comparison to Nigeria, these countries do have a comparative edge in terms of market size, population, GDP, and export base. Every aspect of the economic life of every Nigerian has been impacted by the naira’s depreciation. The economy has implemented inflationary perverseness, which has been characterised by a high cost of doing business.
A sudden decline in value is referred to as currency depreciation. For a very long time and throughout many years, Nigeria has seen its currency depreciate. The economy is affected by the depreciation of the naira, which has been happening since 1986.
The entire worth of all finished goods and services produced for the market controlling a green year within a national boundary is known as GDP (grow domestic product).
It is a total measure of production that equals the gross value added of all the units involved in production (plus any taxes and minus any subsidies on goods that do not increase the value of the output).
GDP is typically calculated in three different ways, all of which, in theory, should produce the same results, according to Dickinson (2012). These are the approaches to production (or output or value added), income, and expenditure.
The production technique, which adds the output of each kind of enterprise to determine the total, is the most straightforward of the three.
People are interested in learning if the economy’s overall output of goods and services is rising or falling. Nigeria’s currency is declining, and as GDP is calculated in local currency, this would have an impact on how Nigeria measures its economy.
Burton (2008) defined interest rate as the rate at which a borrower (debtor) pays interest for the use of money they borrow from a creditor. When dealing with factors like inflation, investment, etc.,
interest rates—which are important tools of monetary policy—are taken into consideration. Due to the depreciation of the naira, borrowing money from other nations will be challenging because the interest rates charged will be greater.
Inflation reduction has been a key concern for policymakers since the 1970s. According to Falaki (2010), one of the causes of nation depreciation inflation is the rate at which prices are growing generally for goods and services and, as a result, people are spending less money. The first sign of inflation is when currency loses value. In light of this, the focus of this study is the background or overview.
STATEMENT OF THE PROBLEM
The ongoing depreciation of the naira has a variety of effects on Nigeria’s economy. The nation’s economy has suffered greatly as a result of the naira’s instability and ongoing depreciation. The economy’s effects include a drop in the population’s standard of life, rising production costs that drive inflation, etc.
The imbalance in the balance of payments is one of the main causes of naira devaluation. Nigeria’s imports surpassed its exports, which had an impact on the currency due of the decline in external reserves. The primary cause of the naira’s devaluation has been the fiscal imbalance, which has led to an excess of liquidity in the economy.
In addition, the central bank has criticised the federal government for not cooperating with its actions for the major course of the naira depreciation.
Regarding spending, in particular the distribution of windfall oil revenue to the state and local governments. This was how the naira depreciated in those years, in 2001, 2002, and 2003.
The sandy wants to learn more about the aforementioned issue.
1. The impact of the gross domestic product depreciation rate on currencies.
2. The impact of exchange rate depreciation on interest rates.
3. The effect of inflation’s inflation rate on currency depreciation.
1.3. OBJECTIVE OF THE STUDY
The primary goal of this study is to determine critically what effect the ongoing depreciation of the naira currency has had on the expansion of the Nigerian economy. Other goals of this research include:
To determine the impact of currency depreciation rates on the growth of the domestic product (GDP).
b. To precisely determine how the rate of currency depreciation affects the interest rate
b. To determine how currency depreciation rates affect inflation.
1.4 RESEARCH QUESTIONS
The following query will be pertinent to getting a clear comprehension of these researched problems.
How much of a difference does the rate of currency depreciation make in terms of GDP?
b. How does the rate of currency depreciation impact interest rates?
b. Does the rate of currency depreciation affect inflation in Nigeria?
1.5 RESEARCH HYPOTHESIS
The theory is:
Ho1: There is no discernible connection between the rate of currency depreciation and the GDP.
Ho2: There is no discernible connection between the rate of currency depreciation and the interest rate.
Ho3: The rate of currency depreciation and inflation do not significantly correlate with one another.
1.6 AIM OF THE STUDY
The research was conducted in Nigeria’s Delta state. For analysis, the study’s time frame ranges from 2000 to 2013. The study’s focus would be solely on Nigeria’s economic activity.
The causes or effects of the naira’s ongoing devaluation are therefore covered in this research paper. Additionally, it will demonstrate the effects of currency depreciation and how they affect consumers, businesses,
and the overall economy. The secondary data used in this study is a time series data, which is a particular kind of secondary data.
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