The Nigerian Foreign Exchange Market: Possibilities for Convergence in Exchange Rates

"This study evaluated the possibility of exchange rate convergence in Nigeria through the institutional differences that segment the Nigeria forex market. The study extended Peterside's equation of Nigerian multiple exchange rates by (a)adding more institutional costs (b)deducing the dynamic conditions for exchange rate conversion in Nigeria and (c)estimating some of the institutional costs and the overvaluation factor. The extended model shows that exchange rate convergence is frustrated by (a)institutional barriers and the costs they generate and (b) the monopoly powers of the CBN in the official market and its exercise of such powers in an unpredictable and uncompetitive manner. The study concludes that convergence in the future may not be possible unless (a) the institutional barriers segmenting the forex market are removed and (b) the official market operates competitively."