On November 26, 2024, the CBN instructed all banks in the interbank foreign exchange market to start using the Bloomberg BMatch System for trading. This platform went live on December 2, 2024, aiming to boost transparency and enhance the efficiency of Nigeria’s foreign exchange market.
As a result, the naira gained strength against the British pound, rising by 209.01 to reach 1,896.62 per pound on February 21, 2025, which is an 11.02 percent increase from the 2,105.63 recorded on December 2, 2024, when EFEMS started.
In the parallel market, often referred to as the black market, the naira appreciated to 1,920 per pound as of February 2, 2025, compared to an average of 2,238 in December 2024.
The naira also made gains against the euro in the official market, increasing by 176.67 to close at 1,569.16 per euro on February 21, 2025, up from 1,745.83 on December 2, 2024, the day EFEMS launched.
In the black market, the euro to naira exchange rate was reported at N1,525 on Monday, which is an improvement from N1,600 the day before, according to an online data platform.
On Monday, the black market rate for 1 Canadian dollar (CAD) was N1,100. This means you can exchange 1 Canadian dollar for N1,100. The black market rates are usually higher than the official ones since they aren’t regulated by the government, as noted by an online data collection platform.
Since the EFEMS started, the naira has appreciated by 157.50 against the dollar, marking a 10.48 percent rise from the 1,660 quoted on December 2, 2024, the first day of EFEMS trading, according to CBN data.
Naira stability and investor confidence
The Monetary Policy Committee (MPC) noted that the foreign exchange market's stability, along with the rising exchange rate and the gradual decrease in Premium Motor Spirit (PMS) prices, is likely to have a positive effect on price trends in the near to medium future.
Olayemi Cardoso, the governor of the CBN, pointed out that the MPC recognized the advantages of improvements in the external sector for exchange rate stability. This includes the alignment of rates between the Nigeria Foreign Exchange Market (NFEM) and the Bureau de Change (BDC). The committee encouraged the bank to keep pushing for better market liquidity.
The MPC also acknowledged the recent initiatives by the CBN, like the Electronic Foreign Exchange Matching System (B-Match) and the Nigeria Foreign Exchange Code, aimed at enhancing transparency, ethics, and credibility in the market. They believe that with the significant policy changes made by monetary and fiscal authorities, there will be an uptick in foreign direct and portfolio investments, as well as remittances from the diaspora, thanks to growing confidence among investors and stakeholders.
In November 2024, the central bank rolled out detailed guidelines for the interbank foreign exchange (FX) trading system through the Electronic Foreign Exchange Matching System (EFEMS), setting the minimum tradable amount at $100,000 with increments of $50,000. This move aims to boost transparency and efficiency in the FX market.
Omolara Duke, the CBN’s director of the Financial Markets Department, shared this information in a recent circular to all banks. She explained that the EFEMS initiative is meant to ensure “transparent, fair, and efficient FX trading, reduce counterparty risks, and ensure compliance with CBN regulations.”
Declining Reserves
According to the latest report from Afrinvest Securities Exchange Limited, the Central Bank of Nigeria (CBN) has experienced a 0.8 percent week-on-week decrease in its foreign reserves, amounting to approximately $320.6 million, which brought the total to $38.8 billion as of February 20, 2025. This decline is primarily due to the CBN's ongoing interventions in the foreign exchange market, where it provides U.S. dollars to commercial banks and Bureau De Change (BDCs) to bolster the naira.
These interventions have led to a strengthening of the naira in both the Nigerian Autonomous Foreign Exchange Market (NAFEM) and the parallel market, with an appreciation of 1.0 percent and 4.0 percent week-on-week, respectively, resulting in exchange rates of N1,494.00 and N1,495.00 per U.S. dollar.
The more rapid appreciation in the parallel market has significantly reduced the exchange rate disparity between the two markets to just N0.97, a notable decrease from N45.30 the previous week.
Naira to Maintain Positive Trajectory
Looking forward, analysts at Afrinvest anticipate that the naira will continue its positive momentum across various foreign exchange segments, contingent upon the CBN's ongoing dollar supply to BDCs and Deposit Money Banks (DMBs), assuming no unexpected market disruptions occur.
Muda Yusuf, the chief executive officer of the Centre for the Promotion of Private Enterprise (CPPE), remarked that the CBN is making progress in stabilizing the foreign exchange market, although challenges from the unregulated black market remain considerable.
He emphasized the complexities involved in tackling the ongoing volatility in the FX market.
“The measures implemented by the CBN are producing some favorable outcomes, but it remains a work in progress,” Yusuf stated. “Speculators and market manipulators are continually finding new strategies, necessitating a sustained effort.”
Mr. Bismarck Rewane, Managing Director and CEO of Financial Derivatives Company (FDC), advises policymakers to exercise caution, despite the recent Nigerian Naira stability.
Last Friday, a leading economist cautioned viewers of Channels TV against overconfidence in the naira's recent rapid appreciation, characterizing it as a temporary phenomenon requiring a prudent approach.
He advised Nigerian policymakers to exercise restraint, emphasizing the need to avoid premature celebrations due to the likelihood of a market correction.
He highlighted several contributing factors, including a decline in foreign reserves (from over $40 billion) and recent bond issuances totaling $4 billion, indicating that approximately $8 billion has been utilized to maintain the current exchange rate.