Unify exchange rates to foster economic growth – NISER

The National Institute of Social and Economic Research (NISER) in a study has asked the Federal Government of Nigeria to stabilize the economy by unifying the multiple exchange rates prevalent in the economy.

According to Dr Damilola Arawomo, a member of the Department of Business and Economic Policy, NISER, said the findings of the study showed that while multiple exchange rate is beneficial in the short term to stimulate local production and stabilize prices for economic growth, there is a crucial need to enforce exchange rate unification.

Dr Arawomo stressed that the continued adoption of multiple exchange rates is unsustainable and harmful to the growth of the Nigerian economy.

The negative effect of the multiple exchange rates on investment also signals detrimental impact of the system on the Nigerian economy.”

However, according to Dr Arawomo, even though the unification of exchange rate will still bring about a negative effect on inflation and investments, it has a positive impact on exports and imports. The effects of imports and investment are both significant in explaining exchange rate.

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.

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 stabilizing exchange rate in Nigeria.”

Meanwhile, NISER findings also indicated that though lack of variety in exports can be a challenge in the short term, the unification of exchange rate will strengthen local production through investments.

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 realized by strengthening the general price level make a unified exchange rate desirable.

Source: Nairametrics

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