The Nigerian naira has experienced a significant appreciation against the US dollar, particularly in the black market, due to recent foreign exchange (FX) reforms implemented by the Central Bank of Nigeria (CBN). The introduction of the Electronic Foreign Exchange Matching System (EFEMS) has been a pivotal move to enhance transparency and efficiency in the FX market.
Key Developments:
1. Appreciation of the Naira: The Nigerian currency continued to strengthen in value against the US dollar in various currency market segments. According to data, the naira closed at N1,535/$1 a dollar in the Nigerian Foreign Exchange Market (NAFEM) on Friday, December 6, 2024.
Friday’s exchange rate represents a 2.0% or N32 gain against the dollar compared to the preceding day’s value of N1,567/$1. This happened despite a 38.8%, or $111.18 million, decline in the value of forex transactions at the official market, to $175.15 million from the $286.33 million recorded a day earlier. This improvement follows months of volatility that saw the naira plummet to historic lows in the official market
2. Role of EFEMS: The EFEMS is designed to unify FX rates, minimize distortions, and ensure that exchange rates reflect true market value. Experts believe this system will enhance price discovery, reduce discrepancies, and increase liquidity
3. Market Reactions: Economists and financial analysts have attributed the naira’s recent gains to better regulatory oversight and increased confidence among key market players. However, they caution that sustained appreciation requires consistent policy implementation and increased FX supply
4. Challenges Ahead: Despite these gains, Nigeria’s FX market still faces challenges, including limited dollar supply, inflationary pressures, and uncertainties about economic reforms. The CBN’s foreign reserves rose by 21% this year, offering some buffer, but further interventions might be necessary
Outlook:
Experts project modest appreciation in the coming months if current policies are maintained. However, the possibility of further depreciation looms if supply gaps persist. Strategic measures to attract foreign investment, boost diaspora remittances, and diversify Nigeria’s revenue sources will be crucial to sustaining the naira’s value
The naira’s recent appreciation reflects a cautiously optimistic outlook for Nigeria’s FX market. Continued reforms like the EFEMS and effective policy enforcement by the CBN are critical to achieving long-term stability and market confidence.
