Effect of External Reserves Management on Foreign Exchange Rate of Nigeria: Implication for Foreign Exchange Stability on Nigeria’s Economy, 2000 – 2024

Abstract:

The study examined the effect of external reserves management on foreign exchange rate of Nigeria spanning from 2000 2024. The model of analysis included the following variables, External Reserves (EXT), Foreign Exchange Rate (FER), Imports (IM), Foreign Direct Investments (FDI), and External Debt Servicing (EDS). The study made use of Johansen Cointegration equations on the existence of the long-run equilibrium relationship amongst the variables. Error Correction mechanism (ECM) technique was used in order to determine the relationship between imports, FDI, external debt servicing, foreign exchange rate, and external reserves management. The study showed that 1 percent increase in external reserves has positive and significant effects on foreign exchange rate in Nigeria. The study recommends that Nigerian government should fashion out ways of steadily increasing its external reserves in order to stabilize the nation’s foreign exchange rate and the government should vigorously pursue more and realistic import substitution policies.