Nigeria's Unique Species Hypothesis and the Fate of the Naira: Why Not, If Not?

Abstract

This paper argues that the Udoji arrears of 1972 disconnected Nigeria's fiscal from monetary policies thereby unchained both from the theoretical fulcrum on which the powers of a central bank to control inflation and defend the value of the local currency are based. The 1972 NEPD exhumed the economy from the theoretical foundation on which the relationship among the real, financial and external sectors is founded. The paper examines the relationship among exchange rate, (as dependent variable); domestic savings, import, export, government expenditure, private consumption, FDI, and foreign debt, as independent variables with forty (40) year annual time-series data, (1986-2020), sourced from World Bank data base. The ARDL model and ECM results show that private consumption, (imported groceries and consumer durables), foreign debt and poor FDI flows accounted for more than 84% of the variation in foreign exchange demand and therefore the value of naira in the period thus belying the Nigerian Unique species hypothesis. The paper therefore concurs with previous studies that policies that stimulate employment, output growth and export expansion will be more effective in helping the naira out of the free-fall syndrome, in particular and the Nigerian economy, in general, from its present doldrums.