These elements have led to enhanced liquidity and confidence within the foreign exchange market, with the naira trading between N1,660 and N1,525 per dollar in the official market, while maintaining stability at approximately N1,660 in the parallel market.
On Thursday, the naira appreciated against the dollar, gaining N5 to close at N1,540/$, compared to the N1,545/$ recorded on Wednesday at the Nigerian Foreign Exchange Market (NFEM), according to CBN data. The local currency remained steady at N1,660 per dollar in the black market.
Authorized currency dealers reported the dollar at a peak rate of N1,550 on Thursday, an improvement from the N1,565 observed on Wednesday, while the market noted a consistent lowest rate of N1,531 per dollar at NFEM.
The naira's stability is largely credited to the CBN’s implementation of the Electronic Foreign Exchange Matching System (EFEMS), which has enhanced transparency and efficiency in foreign exchange trading.
Charlie Robertson, head of macro strategy at FIM Partners UK Ltd, remarked that the naira’s performance may also be affected by the proceeds from Nigeria’s recent Eurobond issuance and the seasonal uptick in dollar inflows from the diaspora.
Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise (CPPE), underscored the transparency introduced by the EFEMS platform. He noted that clearer insights into supply and demand have diminished information asymmetry and rendered demand more realistic. Yusuf also stressed the significance of CBN interventions and the increase in external reserves, which have strengthened investor confidence and alleviated panic. As per CBN data, external reserves were reported at $40.73 billion as of December 17, 2024.
Seasonal influences have significantly impacted the situation. A considerable number of Nigerians in the diaspora are either remitting funds back home or returning with dollars for the holiday season, which has enhanced liquidity in both the official and parallel markets.
Yusuf noted that additional factors contributing to the naira's stability include the issuance of Eurobonds and domestic dollar bond offerings, which have jointly bolstered the foreign exchange market.
Ayodele Akinwunmi, a senior relationship manager at FSDH Merchant Bank, credited the recent foreign exchange policies of the Central Bank of Nigeria (CBN) for the increased supply and transparency. He emphasized that customers now have access to foreign exchange to fulfill their obligations, with current pricing reflecting the realities of the market.
Akinwunmi further highlighted that seasonal patterns, such as a decrease in dollar demand during the Christmas period, have positively influenced the naira's performance.
Aminu Gwadabe, president of the Association of Bureaux De Change of Nigeria (ABCON), remarked that the naira's appreciation is contingent upon CBN interventions in the EFEMS market. He advocated for enhanced liquidity in the retail exchange market through Bureaux De Change (BDCs) to further stabilize exchange rates. Gwadabe proposed utilizing BDCs as effective mechanisms for managing volatility and achieving budgetary exchange rate objectives.
The policies implemented by the CBN have been crucial in promoting stability. On November 26, 2024, the CBN instructed all banks engaged in the interbank foreign exchange market to implement the Bloomberg BMatch system for trading, which became operational on December 2, 2024. Furthermore, the EFEMS guidelines, which include a minimum tradable amount of $100,000 and incremental clip sizes of $50,000, were established to improve transparency and efficiency. The proceeds from Nigeria's recent Eurobond issuance have also been a significant factor in this context.
Earlier this month, Nigeria made a successful return to the international bond market after a two-year absence, with a $1.7 billion issuance that was oversubscribed by four times the initial amount. The transaction attracted over $9.0 billion in orders, showcasing robust investor confidence from various sectors, including fund managers, insurance and pension funds, hedge funds, and banks.
Olawale Edun, Nigeria’s finance minister, pointed to the success of the Eurobond as an indicator of increasing trust in the government's economic strategies. He stressed that these initiatives are designed to stabilize the economy and promote sustainable and inclusive growth.
In a similar vein, Olayemi Cardoso, the governor of the Central Bank of Nigeria (CBN), remarked that the results signify Nigeria's enhanced liquidity position and improved access to international capital markets.
Cardoso also reaffirmed that the electronic foreign exchange matching system will continue to mitigate market distortions, facilitate better price discovery, and strengthen the CBN’s intervention capabilities, thereby fostering a more transparent and stable foreign exchange environment.