A Move Toward a ‘Crawling Peg’ Exchange Rate System in 2023

As of the last working day of the year 2022 (30th December 2022), the official exchange rate against the US dollar (USD) was 448, while the naira USD exchange rate at the black market traded at 748—a premium of 300. The dollar had already peaked above 800 on the black market during the year 2022, when there were pressures on the foreign exchange (FX) due to elevated demand from individuals, students traveling abroad, and businesses that needed FX to produce their goods and services. Given the continuous depreciation of the naira exchange rate against the USD, caused by a scarcity of foreign exchange, pegging the naira against the USD despite a high rate of inflation may not be the solution to the country’s exchange rate maladjustments. The paper, therefore, offers an alternative policy to help circumvent the problem of exchange rate misalignments and mal-adjustments for Nigeria and proffers ways by which the exchange rate policy becomes transparent and explicit, allowing businesses and individuals to better plan their economic and financial activities.