Foreign exchange management in Nigeria.

Abstract

The purpose of this paper is to provide a basis for discussion on the topical issue of Foreign Exchange Management among seminar participants. Accordingly, the paper shall explore briefly the evolution and current practices of Foreign Exchange Management, with particular reference to the Central Bank of Nigeria. Foreign Exchange refers to the revenues earned by a country in covertible currencies from exports of goods and services. Nigeria's principal source of foreign exchange earning is from the export of crude oil. Other sources of foreign exchange flows include non-oil exports, capital importation, foreign investment flows, service incomes, other invisible items, such as external borrowings and foreign aids. The totality of the foreign exchange earned and available at any given time for the settlement of Nigeria's external obligations is referred to as the foreign exchange reserve. The foreign exchange reserve plus Nigeria's holdings of monetary gold, Special Drawing Right (SDRs) and the Reserve Tranche at the IMF constitute the country's External Reserves. The maintenance of an adequate level of reserves is crucial for safe guarding the strength of the economy and the value of the naira against other international currencies. On the other hand, foreign exchange management in its broadest sense, refers to the efficient holding and optimal deployment of all the country's foreign exchange reserves in order to meet its foreign exchange expenditures and other monetary policy targets. Thus foreign exchange management must aim at accounting for all receivable foreign exchange revenues, investing the foreign exchange reserve in a most efficient manner, determining a sustainable exchange rate for the Naira vis-a-vis other foreign currencies and above all, provide immediate liquidity in meeting Governments' commitments.