IMPACT OF NAIRA REDESIGN ON FOREIGN EXCHANGE RATE IN NIGERIA
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IMPACT OF NAIRA REDESIGN ON FOREIGN EXCHANGE RATE IN NIGERIA
Chapter one
INTRODUCTION
1.1 Background for the Study
Currency redesign is a frequent practice among governments worldwide, and it has been undertaken for a variety of purposes, including improving security features, promoting national identity, and combating counterfeiting (Holden, 2018).
Currency redesign has been shown to have a substantial impact on the exchange rate, since the perception of the new currency by international investors and market participants can influence demand and, ultimately, value.
For example, the European Union underwent a currency redesign in 2002 when the euro was introduced as a unified currency. The euro currency redesign had a substantial impact on the exchange rate since it facilitated the integration of European financial markets and raised demand for the euro (Cummings, 2016).
In the United States, the redesign of its currency in the 2000s was intended to improve security features and combat counterfeiting (Holden, 2018). The redesign of the US dollar had a favourable impact on the exchange rate because it boosted market participants’ trust in the money and its ability to prevent counterfeiting.
Currency redesign can affect the foreign exchange rate through a variety of mechanisms. Currency redesign can alter market perception, demand, and confidence, influencing the foreign exchange rate (Coker, 2017).
The impression of the new currency by international investors and market participants can have an impact on demand and, ultimately, the exchange rate (Cummings, 2016).
A good currency redesign that improves a currency’s security and legitimacy can boost market trust and demand, resulting in a stronger exchange rate.
On the other side, a badly constructed currency or one that fails to satisfy market expectations might reduce demand and cause the exchange rate to fall. Furthermore, variations in the level of counterfeiting might affect market participants’ faith in the currency and its exchange rate (Williamson, 2016).
Currency redesign can have a substantial impact on the foreign exchange rate, which varies depending on the individual conditions and goals of each country and its currency (Soludo, 2014).
A well-planned and successful currency redesign can help to strengthen the exchange rate, whereas a poorly conceived or unsuccessful redesign can cause the exchange rate to fall.
Currency redesign is a widespread practice among countries, and it has been shown to have a major impact on the exchange rate by influencing market perception, demand, and trust (Chua, 2016). The influence of currency redesign varies according to the individual conditions and goals of each country and currency.
Nigeria’s foreign currency market has long been influenced by a variety of economic, political, and social issues, which have impacted its stability and exchange rate variations.
One of the most recent advancements in the Nigerian economy is the redesign of the national currency, the Naira (Chua, 2016). The Central Bank of Nigeria redesigned the Naira to combat counterfeiting and enhance national identity.
However, economists and policymakers have expressed concern about the impact of this redesign on Nigeria’s foreign exchange rate (Akanji, 2018).
Nigeria’s foreign exchange market is seen as an important factor in the country’s overall economic stability and prosperity. The foreign exchange rate influences several areas of the economy, including commerce, investment, inflation, and consumer purchasing power (Akanji, 2018). The effect of the Naira redesign on the foreign exchange rate may have far-reaching consequences for the Nigerian economy.
Previous research has demonstrated that currency redesign can influence exchange rates via psychological and market perception effects. The impression of the new currency by international investors and market participants might influence the currency’s demand and exchange rate (Garba, 2016).
Furthermore, currency designs can influence the extent of counterfeiting, affecting market players’ confidence in the money and its exchange rate.
The redesign of the Naira is a recent development in the Nigerian economy that has the ability to influence the foreign currency market and exchange rate.
This study aims to shed light on the influence of the Naira redesign on Nigeria’s foreign exchange rate, as well as to provide policymakers and market participants with information (Akpan, 2019).
The Nigerian foreign currency market and the Naira’s value have fluctuated significantly due to a variety of economic, political, and social issues. Nigeria relies substantially on oil exports, and fluctuations in oil prices have a considerable impact on the country’s economy and foreign exchange market (Akpan, 2019).
Furthermore, government actions and macroeconomic variables such as inflation can have an impact on the foreign exchange market’s stability and the value of the naira.
In recent years, the Central Bank of Nigeria has used a variety of measures to support the stability of the foreign exchange market and the Naira, including currency interventions and restrictions on foreign exchange access (Garba 2016). Despite these attempts, the value of the Naira has continued to suffer major hurdles, resulting in a drop in its exchange rate.
The Nigerian foreign exchange market and the Naira’s value are influenced by a variety of factors that can affect their stability and exchange rate.
The Central Bank of Nigeria has implemented a number of measures to promote the stability of the foreign currency market and the Naira, but issues remain. With this background, this study will examine the influence of the Naira redesign on Nigeria’s foreign exchange rate.
1.2 Statement of Problem
Nigeria’s foreign exchange rate dilemma is a complex subject with far-reaching implications for the country’s economy and financial stability. One of the most significant issues is the Nigerian economy’s reliance on oil exports.
Changes in oil prices can have a considerable impact on Nigeria’s foreign exchange market, as oil exports make for a sizable amount of the country’s revenue.
When oil prices are low, demand for the Naira falls, and the exchange rate drops, potentially leading to inflation and additional economic instability.
Inflation is another concern for Nigeria’s foreign exchange market. High inflation rates can lower the value of the currency and raise the cost of imported products, reducing demand for the currency and lowering its exchange rate.
This can have a knock-on effect on the economy, raising the cost of goods and services, resulting in lower consumer expenditure and slower economic growth.
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