THE IMPACT OF EXPORT PROMOTION OF ECONOMIC GROWTH IN NIGERIA. A RESEARCH PROJECT MATERIAL ON BANKING AND FINANCE
1.0 BACKGROUND OF THE STUDY
Foreign exchange is the means of payment for international transaction. It is made up of convertible currencies that are generally accepted for the settlement of international trade and other external obligation. Just like every other commodity, a market is established which works more like any other market having a supply curve, a demand curve and an equilibrium price and quantity. There are also conditions which are held constant (creteris paribus). When these conditions change, the curve shift and there is a change in the equilibrium price quantity. This market for currencies is known as the foreign exchange market.
The foreign exchange market according to the central bank of Nigeria is the medium of interaction between the sellers and buyers of foreign exchange. The seller of foreign exchange constitutes the supply while the buyers of foreign exchange constitutes its demand. The supply of foreign exchange is derived from oil exports, non-oil export, expenditure of foreign tourist in Nigeria, capital repatriation by Nigerians resident abroad etc.
The demand for foreign exchange on the other hand consist of payments for imports, financial commitments to international organizations, external debt service obligations etc.
Before 1958, when the central bank was established and the enactment of the exchange control act of 1962, foreign exchange was earned by the private sectors and held in balances abroad by commercial banks which acted as agents for local exporters. Another feature of this period was that agriculture exports contributed the bulk of foreign exchange receipts. The fact that the British pound sterling was at par with the Nigerian pound sterling with easy convertibility delayed the establishment of an active foreign exchange market.
However by 1958, when the central bank was established and subsequent centralization of foreign exchange authority. In banks, the need for a local foreign exchange market is paramount. Other factors that led to the evolution of the foreign exchange market in Nigeria include:
The changing pattern of international trade institutional changes in the economy. structural shift in production, etc.
By the early 1970’s, the official exchange receipt was enhanced following the sharp rise in prices and demand for crude oil exports which had by now displaced agricultural exports. The foreign exchange market experienced a boom during this period and there became a need for the management of foreign exchange resources. However, it was not until 1982 that comprehensive exchange controls were applied.