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The recent offloading of dollars by traders in response to the Central Bank of Nigeria’s (CBN) new foreign exchange framework has given the naira significant gains across various markets. Over the past few trading days, the naira has appreciated rapidly, with experts predicting that the fear of continuing gains may trigger further panic selling, pushing the currency even higher.
In the official market, the exchange rate saw significant improvements, but the parallel market has shown even more dramatic shifts. By the end of the week, sources reported that the exchange rate had dropped to N1,570/$1 from N1,700/$1 earlier, signaling a strong recovery of the naira.
This surge follows the launch of the Electronic Foreign Exchange Matching System (EFEMS) on December 2 by the CBN. The platform, designed to combat speculation and improve transparency, allows for spot foreign exchange transactions between the naira and the U.S. dollar. Operated through Bloomberg’s BMatch system, the platform has a minimum trade size of $100,000, with subsequent increments of $50,000.
The new system matches buy and sell orders automatically, ensuring fairness and promoting efficiency in FX trading. Authorized dealers, including commercial banks, can place real-time orders on the system, with transactions processed based on predetermined rules for swift execution.
During a recent speech at the Chartered Institute of Bankers (CIBN) 59th annual bankers’ dinner in Lagos, CBN Governor Olayemi Cardoso hailed EFEMS as a transformative step towards greater market transparency. He emphasized that the unification of Nigeria’s exchange rate, alongside this new platform, would restore confidence, attract investments, and create a more resilient FX market.
Naira’s Speedy Rebound
The new policy has contributed to the naira’s impressive recovery, strengthening to N1,587.29 to the dollar in the official market and N1,640 in the parallel market. Prior to the policy’s implementation, the naira had dropped to a record low of N1,755/$1 on November 21, 2024. Since then, the currency has recovered by 18.8 percent in the parallel market, while the official rate improved by 2.08 percent.
In the parallel market, the naira started showing signs of strength on Tuesday, moving from a stagnant rate of N1,745/$1 to N1,720/$1. It further appreciated to N1,670/$1 on Wednesday and strengthened to N1,640/$1 by Thursday. On the official market, the CBN recorded improvements, with the exchange rate progressing from N1,662.77 on Monday to N1,587.29 by Thursday.
Mixed Reactions and Optimism
Some financial experts are optimistic about EFEMS’ potential to address longstanding issues affecting the naira and Nigeria’s foreign exchange reserves. Ayokunle Olubunmi, Head of Financial Institutions Ratings at Agusto & Co, views the new platform as a crucial step in redefining and sanitizing the FX market, highlighting the transparency it brings.
Tilewa Adebajo, CEO of CFG Advisory, also praised the initiative but cautioned that it may be too early to attribute the recent naira appreciation solely to the EFEMS. He emphasized that transparency is key, and while the system is promising, its long-term impact on the market remains to be seen.
Speculators’ Struggles
Traders and speculators are facing considerable challenges as the naira gains strength. Many who had hoarded dollars, anticipating continued depreciation of the naira, are now rushing to sell at a loss. Some anonymous sources revealed that suppliers were even offloading dollars at rates as low as N1,500 per dollar in the parallel market, significantly undercutting the official market rate. This panic selling is expected to continue, adding further volatility to the market.
The market’s rapid shift has sparked concern among speculators, who are now scrambling to adjust to the new dynamics of Nigeria’s forex landscape.
