bringing illegal foreign exchange leakages into official channels and putting an end to oil and gold smuggling. Inflow of foreign capital can be improved through devaluation only if prices do not rise. It is supposed to provide an escape from vexations import controls that prevent utilization of full industrial capacity, stifle export drive, bestow monopoly profile in few products. The total effect of devaluation depends on the elasticity of the supply and demand for traded goods. The more elastic the demand for import and export, the greater the effect of the devaluation on the country’s trade deficits and therefore, on the Balance of Payments (BOP); the less elastic the demand for import, exports, the less effective devaluation will be, to eliminate a given imbalance Myriads of factors appear to cause exchange rate devaluation in Nigeria. They include Balance of Payments deficit, inflate interest rate and adherence (Abken, 1993). Balance of payment deficit is one of the factors that induces devaluation. If the debit side of the Balance of payments exceeds the credit side, there occurs an unfavourable BOP position. This situation leads to a fall in the external value of the domestic currency vis-à-vis the foreign currency, which leads to a fall in the exchange rate. The fall in exchange rate occasioned by adverse BOP, leads to increase in export, and adverse BOP is corrected and equilibrium BOP put in place (Oyendi, 2013). Serious problems confronting several economics in the twenty-first century has been inflation. Inflation is defined as a rise in the average level of prices for all goods and served; some prices of individual goods are always rising while others are declining. However, inflation occurs when the average level of all prices in the economy rises. Interest rates represent the “price” of credit. Are they also affected by inflation? The answer is yes, though there is considerable debate as to exactly how and by how much inflation affects interest rates. However, it could be right to state in brief that, interest rates and inflation appear to be at least moderately correlated with one another (Rose, 2003). Adherences constitute one of the major problems of devaluation in Nigeria. It denotes the inherited structures by the leaders, which is the inability of the leaders in Nigeria to change the statusquo. In short in the Nigerian balance “joining the banwagon”. There is absolutely no vision for the future. There is planlessness all the way. My predecessors in office were importing petroleum products in a country of abundance of crude oil.
Euro-Asian j. econ. financ. ISSN: 2310-0184 (print) ; 2310-4929 (online) Volume: 2, Issue: 4, Pages: 306-315 311 To plan to build new refineries or expand existing capacitie s is a “taboo”. Thus, adherence to norms in an emerging economy has greatly affected reserve position of Nigeria leading to exchange rate devaluation (Abeken, 1993).
You've reached the end of your free preview.
Want to read all 10 pages?