Study wants government to stabilise multiple exchange rates

By Gbenga Akinfenwa
 A recent study by the Nigerian Institute of Social and Economic Research (NISER), has stressed the need for government to stabilise the nation’s exchange rate to address its adverse effect on the
macroeconomy.
According to the findings, while the multiple exchange rate strategy may be sustained in the interim, to stimulate local production and stabilise general price for economic growth, there is an urgent need to quickly enforce exchange rate unification.
On the potential effects of a unified exchange rate on the Nigerian macro economy, the empirical results show that a unified exchange rate will produce a positive and insignificant effect on economic growth.
Presenting the study during its monthly Research Seminar Series, yesterday, in Ibadan, Dr. Damilola F. Arawomo of the Economics and Business Policy Department, said concerns are being expressed on the continued adoption of multiple exchange rates, which is unsustainable.Arawomo said: “The negative effect of the multiple exchange rates on investment also signals detrimental impact of the system on the Nigerian economy.
“This suggests that even if the exchange rate is unified, it might engender economic growth possibly on the account of other factors that influence economic growth other than the exchange rate. A unified exchange rate will have a negative effect on inflation and investment.
“However, its effect on exports and imports will be positive. The effect on investment and import is significant.” he said.He added that in the short term, the official exchange rate should be made easily accessible, especially to the productive sector of the economy; adding that the long-run strategy should be towards unification with the intent of reducing import dependency for sustained economic growth and development.
“The positive effect of a unified exchange rate on exports and investments, as well as its negative effect on inflation though at an insignificant level suggest the possible existence of other unconventional approaches adopted in stabilising exchange rate in Nigeria.
“In as much as lack of diversified export base has been a bane to the Nigerian economy, increase in export and investment as a result of a unified exchange rate could actually strengthen the productive base of the economy, thereby increasing completeness. Also, the benefits that will be realised by strengthening the general price level make a unified exchange rate desirable,” he added.