The Central Bank of Nigeria (CBN)’s recently introduced Electronic Foreign Exchange Matching System (EFEMS) is being credited for the remarkable appreciation of the Naira against major world currencies. The system, which went live on December 2, 2024, has brought significant changes to Nigeria’s forex market, narrowing the gap between official and parallel market rates.

EFEMS Implementation and Bank Compliance

In a circular issued to banks, the CBN mandated the adoption of Bloomberg’s BMatch platform as the electronic system for forex trading. The directive emphasized the need for swift onboarding and cooperation to ensure seamless operations. The circular also warned that the CBN would enforce compliance through its regulatory powers and impose sanctions for non-adherence.

For the first time since May 2024, the Naira appreciated for five consecutive trading days across all forex market segments. By the end of last week, the Naira traded at N1,535/$1 in the official Nigerian Foreign Exchange Market (NFEM) and N1,555/$1 in the parallel market, marking a significant recovery.

Positive Market Impact

A banking executive who spoke anonymously praised the EFEMS platform for its real-time insights and market transparency.
“The system is achieving its goal as you get a feel of where the market is in real time. People are putting up orders, matching trades, and contributing to market clarity,” he noted.
The official added that CBN’s intervention using the new system further supported the Naira’s appreciation.

Despite the positive strides, the source cautioned that while the current trend is encouraging, the market may eventually stabilize at a new equilibrium.

Forex Market Recovery and Reduced Parallel Market Spread

The introduction of EFEMS has narrowed the disparity between official and black market rates. Last week, the margin between these rates shrank to N20/$1 from N118/$1, signaling improved market efficiency.

According to CBN data, the Naira gained N168/$1, or 9.8%, from the previous week’s closing rate of N1,720/$1, making it the largest weekly gain in 2024. The Naira’s recovery has been particularly notable after months of sustained depreciation, which saw rates plunge from N907/$1 in January 2024 to N1,730/$1 by October. The new system appears to have reversed this trend, with rates returning to the N1,600/$1 range.

Black Market Observations

Operators in the parallel market, or black market, have attributed the rapid appreciation to several seasonal and structural factors. Mr. Yakubu Giwa, a black market trader, explained that the surge in Naira value is partly due to increased dollar inflows during the festive season.
“Diaspora remittances and local spending for the holidays are driving more dollars into the market,” he said.

He added that individuals holding dollars are now selling to avoid losses as the Naira continues to appreciate. However, traders are cautious, fearing further gains could push rates to N1,300/$1 or lower.

Broader Currency and Commodity Trends

The Naira’s appreciation has also impacted other currencies and commodities. Mr. Umoru Yahaya, a gold trader, reported declines in the exchange rates of the British pound and euro. The pound, which traded at N2,200, dropped to N1,700, while gold prices fell from N150,000 per gram two weeks ago to N115,000 per gram.

Silver prices also plunged, from N50,000 per gram to N20,000 per gram, reflecting the broader deflationary trend in commodity prices linked to currency strength.

Long-Term Outlook

While the short-term impact of EFEMS is promising, analysts caution against premature celebration. Sustaining the gains will require continued intervention by the CBN and structural reforms to improve forex liquidity and market stability. The banking sector has expressed optimism but remains watchful of potential volatility as the system matures.

The CBN’s initiative has rekindled hope for a more efficient forex market, reducing the reliance on the parallel market and improving confidence in the official exchange rate mechanism. However, its success will depend on sustained policy consistency, transparent implementation, and collaboration among stakeholders.

For now, the Naira’s rally provides a welcome reprieve for businesses, importers, and the general populace, marking a significant step toward restoring stability in Nigeria’s forex landscape.