The Effect of Exchange Rate Fluctuations on Balance of Payments in Nigeria
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Abstract
The continued devaluation of the Nigerian naira by the Central Bank of Nigeria is damaging to businesses and the economy as a whole. This is reflected in Nigeria's balance of payments deficit over the years. Hence, this study focused on emphasizing the need for a stable, regulated exchange rate for the Central Bank of Nigeria. Against this background, this study examined the effects of exchange rate fluctuations on the balance of payments in Nigeria. The ex post facto research design has been adopted in this study. The influence of exchange rate volatility was tested on the BOP current account, the BOP capital account and the BOP financial account. Secondary data was obtained from the CBN website and the National Bureau of Statistics for 2010-2019. Descriptive statistics and Pearson's correlation using the Statistical Package for Social Sciences 23 were used to analyze the data. It was found that the recent relatively unstable exchange rate had resulted in a disrupted balance of payments in Nigeria. The implications of this finding was that an unstable exchange rate has weakened the value of the Nigerian naira, discouraging exports of local goods, making imports of foreign goods more expensive and hindering domestic and foreign investment, which ultimately has a negative impact on the balance of payments. It was concluded that exchange rate volatility can cause balance of payments deficit. It was therefore recommended that the CBN be vigorous in promoting exchange rate stability, as the overall performance of the economy revolves around exchange rate stability.
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