The Evolution of Exchange Rate Regimes in Sub-Saharan Africa : Experiences of Two West African Countries

In this paper, we review the exchange rate regimes, and policies pursued by two lower-middle income countries in West Africa, namely: Ghana and Nigeria. The evidence suggests that these countries pursued fixed exchange rate regimes during the 1960s and the 1970s. During the fixed exchange rate regimes, the exchange rates in these countries were generally stable; but they were mostly overvalued. These countries later undertook various devaluation and revaluation exercises: especially between the mid-1970s and the early 1980s, to make their currencies competitive. The devaluation and revaluation exercises were mostly followed by peg systems. The evidence also suggests that these countries shifted gradually from the fixed exchange rate regimes to more market-determined systems from 1986 onwards. After adopting the market-determined exchange rate regimes, the two countries experienced depreciated currencies. The paper concludes that flexible exchange rate regimes should be synchronously implemented with exchange rate shock stabilizers in order to accommodate the inherent exchange rate volatilities.