The naira crashed to N1640/$1 at the parallel market at the close of business on Monday, December 9, 2024, ending four consecutive days of exchange rate appreciation since the Central Bank of Nigeria (CBN) migrated to the Enhanced Foreign Exchange Market System (EFEMS) platform.
This represents a N70 or 4.5% loss when compared with the N1570/$1 that was recorded on Friday, December 6, 2024, as the predicted resistance of forex speculators appears to have reared its ugly head.
A top Bureau De Change (BDC) operator had told Nairametrics that the hitherto huge dollar supply in the forex market had dried up as the resistance to the continuous appreciation of the local currency heightened.
He said, ‘’And the prediction of speculators resistance is what happened today as the naira lost value from #1535/$ on Friday to N1640 /$ this evening at the close of business. The hitherto dollar supplies in the market became completely dried as resistance to the appreciation of the local currency heightened.’’
Meanwhile, some other sources quoted the exchange rate at N1665/$1 at the parallel market.
Local currency drops at the official EFEM market
Also, according to data from the CBN, the naira depreciated at the official EFEM market trading at N1538.5 on Monday, December 9, 2024, as against the N1535/$1 recorded on Friday, December 6, 2024. This represents a N3.50 or 0.23% drop.
- Intra-day high and low for the day were N1,554 and N1,524.5 respectively while the weighted average rate is N1,539.25
- Monday’s closing rate at the EFEM market represents a N3.50 or 0.23% drop over the previous trading day’s N1535/$1, reflecting a dent in the recovery of the local currency at the official market.
This appears to have widened the gap between the official rate and the black market rate from N35 to N101.5.
EFEMS boosting price discovery, transparency
The introduction of EFEMS by the CBN appears to be driving transparency and efficiency in Nigeria’s forex market with the positive gains on the naira evidence of the impacts.
- The platform, which consolidates all forex transactions into a single market, has now delivered gains for five consecutive days.
- EFEMS requires all FX transactions to be priced through the system, ensuring that daily exchange rates are transparent and accessible to the public.
- The platform replaces the fragmented system of multiple windows, such as the Investors & Exporters (I&E) FX Window, SME Window, and Invisible Window.
The centralized pricing mechanism has been pivotal in reducing speculative behaviour and bolstering confidence in the naira.
What you should know
Nairametrics had earlier reported that the President of the Association of Bureau De Change Operators of Nigeria (ABCON), Aminu Gwadebe, had warned that forex speculators will resist the rapid appreciation of the naira to cover their losses.
- Gwadebe had urged the CBN to keep the momentum, discourage the illegal act of speculation and currency substitution as well as engage the BDC operators where volatility is pervasive.
- The comments by Gwadebe followed the significant strengthening of the naira at both the official and parallel markets after days of appreciation since the apex bank introduced the EFEMS platform.
- The official market experienced rapid gains in the exchange rate, while the parallel market, where forex is traded unofficially, presented an even more unsettling scenario for speculators. The naira was gaining faster than they could sell.
- The ABCON boss said the huge forex supply is struggling to cope with very weak demand stating that the development in the market calls for circumspection.
He said, ‘’Market is dull. Demand is very weak and supply very huge. The development in the market calls for circumspection. Already, there is a huge loss on speculators and currency substitutions.
‘’I can see speculators resisting the appreciation to cover their losses and the CBN needs to keep the momentum on ensuring hopes. Sometimes I wonder if the inorganic appreciation of the naira falls within the CBN templets.
The CBN should first maintain the momentum and discourage illegal behaviours of speculations and currency substitution and engage the BDCs where volatility is pervasive.’’