An assessment of exchange rate volatility’s economic impact on Nigeria’s trade: Evidence from the CBN (2000–2020).
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Background of the study:
Exchange rate volatility has emerged as a critical determinant of trade performance in emerging economies. In Nigeria, fluctuations in the exchange rate have had a pronounced effect on the trade sector by influencing export competitiveness, import costs, and overall economic stability. The Central Bank of Nigeria (CBN) has implemented various measures to manage exchange rate volatility, yet persistent fluctuations continue to affect trade flows. The unpredictable nature of currency movements can lead to increased uncertainty for exporters and importers, altering pricing strategies and affecting profit margins. Recent studies indicate that while a stable exchange rate can promote trade by reducing transaction costs and mitigating risks, volatility often results in reduced foreign trade volumes and higher market inefficiencies (Uche, 2023). Furthermore, the spillover effects of exchange rate volatility on inflation and investment further complicate the trade environment (Chinwe, 2024; Ibrahim, 2025). Understanding these dynamics is essential for developing strategies that stabilize the exchange rate and enhance the predictability of trade outcomes, thereby fostering a more resilient economic framework.
Statement of the problem:
Despite efforts by the CBN to stabilize the exchange rate, persistent volatility continues to negatively affect Nigeria’s trade performance. The uncertainty created by fluctuating exchange rates increases operational risks for businesses and reduces overall competitiveness in international markets (Uche, 2023; Chinwe, 2024). This volatility has led to decreased export volumes and inflated import costs, thereby hampering trade and economic growth. The study aims to critically examine the economic impact of exchange rate fluctuations and propose measures to mitigate these adverse effects.
Objectives of the study:
- To assess the economic impact of exchange rate volatility on Nigeria’s trade.
- To examine the effectiveness of CBN measures in managing currency fluctuations.
- To recommend policies for stabilizing the exchange rate and enhancing trade performance.
Research questions:
- How does exchange rate volatility affect Nigeria’s trade performance?
- What challenges do current CBN measures face in managing volatility?
- What policy interventions can reduce exchange rate risks?
Research Hypotheses:
- Exchange rate volatility negatively impacts trade performance.
- CBN measures have limited effectiveness in curbing volatility.
- Stabilization policies can improve trade outcomes.
Significance of the study:
This study is significant as it provides a critical evaluation of how exchange rate volatility affects Nigeria’s trade sector. The findings will offer practical insights for policymakers and financial institutions to devise strategies that stabilize the currency and foster a more predictable trade environment. By addressing key challenges, the research aims to support sustainable economic growth and enhanced international competitiveness (Ibrahim, 2025).
Scope and limitations of the study:
This study is limited to analyzing the economic impact of exchange rate volatility on trade in Nigeria, focusing on measures implemented by the CBN and their outcomes.
Definitions of terms:
- Exchange Rate Volatility: The degree of fluctuation in the value of a currency relative to others.
- Trade Performance: The effectiveness and volume of a country’s international trade activities.
- Central Bank Measures: Policy actions taken by a central bank to regulate currency value.
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