KEY POINTS
- The reasons why the Naira has appreciated include the introduction by the CBN of the Electronic Forex Matching System (EFEMS).
- This has triggered the Naira to gain greatly, eating into the spread between official and parallel exchange rate.
- The ongoing appreciation of the naira is as result of seasonal factors like increased remittances and festive period.
The introduction of the Electronic Foreign Exchange Matching System (EFEMS) by the Central Bank of Nigeria (CBN) has fueled the local currency, Naira, on an impressive gaining streak against major global currencies.
The banking system claims this new system improves transparency and efficiency in the foreign exchange market, attributing the recent massive appreciation of the Naira to it.
The EFEMS, operational since Dec 2 2024, allows real time matching of forex orders using the Bloomberg BMatch platform. This system goes to further improve market liquidity and make exchange rates transparent and was designed to easily facilitate the currency trading in Nigeria.
CBN’s strategic intervention and the market reaction
But speaking, bankers confirmed that with the new forex system, it has positively impacted market operations as movements of exchange rates are more visible in real time.
A bank executive, speaking on the condition of anonymity, remarked, “It seems like the system is working well and achieving its intended purpose.” People are helping with market colour, putting up orders on the system, matching trades, and good places for people to set up. Since the launch the Naira has appreciated.”
Also, the new system seems to be aiding the CBN to intervene in the market for the good of the Naira. Nevertheless, bankers are optimistic, though they caution that it is still unclear whether they can sustain these appreciations in the long term.
Naira close weekly gains
This has been Naira’s best performance as the currency has risen five days in a row across all forex segments for the first time since May 2024. In the last weekend, the official rate was pegged at N1,535 to $1, a narrowing gap when compared to the parallel market rate N1,555 to $1.
From N118 per dollar, the margin that existed between the parallel market and the Nigerian Foreign Exchange Market (NFEM) rate has also gone down to about N20 per dollar.
The Naira gained N168, or 9.8%, against the dollar in one week according data from the Central Bank of Nigeria, the biggest weekly appreciation this year. Prior to this, the Naira’s exchange rate had depreciated steadily in the year, reaching as high as N1,730 per dollar by October, but it changed in November.
Seasonal factors and black market insight
Black market traders have also noticed the continuous daily appreciation of the Naira. Increased foreign exchange inflows, coming in from Nigerians abroad repatriating funds for the festive season, partly accounts for Naira strengthening, Mr. Yakubu Giwa, a black market operator said.
It has also resulted to a situation where a lot of black market traders now have to contend with selling dollars because they are unable to sell adequately, others fear incurring a loss when the Naira appreciates some more.
This will also involve activities such as people in the diaspora going home and sending money home to their families. “Dollars are brought out by those who have them; we are, however, circumspect about where the market is heading,” said Giwa.
Beyond the appreciation of the Naira against the dollar, the currency is also showing strength on the pound sterling, euro and commodities like gold and silver. Mr. Gold which used to sell for N150, 000 per gram has fallen to N120, 000, while silver from N50, 000 per gram now sells for N20, 000 per gram, said Umoru Yahaya, another black market trader.
