The launch of Electronic Foreign Exchange Matching System (EFEMS) by the Central Bank of Nigeria (CBN) has propelled the naira to significant gains, with rates strengthening to N1,587.29 to the dollar in the official market, and N1,640 at the parallel market.
EFEMS, which commenced operations on Monday, had seen appreciation in the value of the naira since its inception.
The platform had also been commended by analysts as a pivotal tool in eliminating distortions and bringing greater efficiency to Nigeria’s volatile foreign exchange market.
A breakdown of the movements at the parallel market this week showed that it began registering gains on Tuesday, trading at N1,720/$1 from a stagnant rate of N1,745/$1, which had persisted for over a month.
On Wednesday, the naira appreciated sharply to N1,670/$1and further strengthened to N1,640/$1 yesterday.
On the official market, CBN quotes for the Nigerian Foreign Exchange Market (NFEM) showed the average rates starting at N1,662.77 on Monday, improving to N1,644.78 on Tuesday, and further to N1,613.86 on Wednesday, before hitting N1,587.29 yesterday.
In a circular announcing the EFEMS platform, the CBN detailed that it facilitates spot foreign exchange transactions between the naira and the U.S. dollar. The platform, operated through Bloomberg’s BMatch system, requires a minimum trade value of $100,000, with incremental trade sizes of $50,000.
The apex bank stated that the platform seamlessly integrated with banks’ middle and back-office systems, and it generated consolidated trade statistics that were accessible to the market, according to Bloomberg.
The platform is accessible to all CBN-licensed dealer banks, the central bank said.
According to CBN, EFEMS is a critical tool for reducing counterparty risks and ensuring market discipline.
Trades conducted on the platform are binding, with participants required to set credit and settlement limits to avoid exceeding thresholds.
Governor of CBN, Mr. Olayemi Cardoso, speaking at the Chartered Institute of Bankers (CIBN) 59th annual bankers’ dinner in Lagos, recently, stated that EFEMS was a transformative step towards market transparency and price discovery.
He said, “The unification of the exchange rate is a pivotal reform, but it marks just the beginning. On the 2nd of December 2024, the foreign exchange market will begin trading on the electronic FX matching system to further enhance transparency, restore confidence, and attract new investments.
“Coupled with an improved framework for deploying products targeting the Nigerian diaspora and efforts to establish a well-functioning FX market, we anticipate increased diaspora and foreign investments over the next 12 months, building a more resilient and liquid FX market.”
Cardoso said over the past year, CBN had undertaken critical reforms to unify Nigeria’s exchange rate, eliminating distortions and restoring transparency.
He also addressed misconceptions about the FX market, emphasising the role of EFEMS in countering panic-driven distortions.
He said, “It is vital to address the disinformation circulating about a supposed demand-supply gap in the FX market, which is fuelling unnecessary panic.
“The current USD exchange rate reflects the price that the most desperate buyers are willing to pay, and this does not represent the true market value of the naira.
“The introduction of the electronic matching system will correct these distortions by enhancing the price discovery process. Additionally, it will significantly boost the central bank’s oversight and intervention capabilities, ensuring a more stable and transparent foreign exchange market.”
Chief Executive Officer of Financial Derivatives Company, Bismarck Rewane, at the Parthian Economic Discourse 2024 (PED24) in Lagos, recently, forecasted a 10 per cent appreciation of the naira in 2025 and anticipated Nigeria’s economy will recover from the most challenging phase of its reform adjustment process by the same year.