Foreign Exchange Pressure and Foreign Exchange Intervention in Nigeria: A Review of Literature

Abstract

This paper conducts a comprehensive examination of the concepts of foreign exchange pressure and foreign exchange intervention within the Nigerian foreign exchange market. It delves into the theoretical foundations and empirical evidence underpinning these crucial elements of economic policy in Nigeria. To begin, the paper elucidates the various factors driving foreign exchange pressure in the Nigerian context, encompassing trade imbalances, external shocks, and economic fluctuations, which exert significant pressure on the exchange rate and foreign exchange reserves, necessitating effective strategies for policymakers and market participants. Furthermore, the paper sheds light on the theoretical frameworks and models that form the basis of foreign exchange intervention, emphasizing the substantial impact of central bank and government interventions on maintaining foreign exchange market stability, averting abrupt currency devaluations, and upholding macroeconomic equilibrium. Additionally, the paper reviews empirical literature, offering valuable insights into the practical implications of foreign exchange pressure and intervention in Nigeria, showcasing the Nigerian central bank's use of measures like capital controls, foreign exchange auctions, and exchange rate pegs. The effective management of foreign exchange pressure in Nigeria plays a pivotal role in ensuring economic stability, bolstering international trade, and fostering sustainable economic growth within the nation.