Nigeria’s currency, the naira, has appreciated by N125 to the dollar, one month after the introduction of the Electronic Foreign Exchange Matching System (EFEMS). This marks a significant improvement, with analysts predicting a sustained positive trend for the naira in 2025.

According to the Central Bank of Nigeria (CBN), the naira strengthened by 8% as the dollar was quoted at N1,535 on January 3, 2025, compared to N1,660 on December 2, 2024, the official launch date of EFEMS. This reflects a N125 gain in one month.

CBN’s Vision: EFEMS as a Game Changer

EFEMS, introduced on October 3, 2024, was designed to curb speculation and enhance transparency in Nigeria’s foreign exchange market. Following a two-week trial in November, it officially became operational in December.

CBN Governor Olayemi Cardoso lauded the system, emphasizing its importance in unifying exchange rates and restoring confidence among businesses.

“Over the past year, we have undertaken critical reforms to unify Nigeria’s exchange rate, eliminating distortions and restoring transparency,” Cardoso stated. “The electronic FX matching system enhances functionality and has proven effective in other markets.”

Market Reactions and Observations

The naira’s appreciation has been attributed to various factors, including:

1. Enhanced FX Supply and Market Transparency
   According to Ayodele Akinwunmi, Senior Relationship Manager at FSDH Merchant Bank, CBN’s policy measures have boosted foreign exchange supply, improving market transparency. He also noted seasonal factors like reduced dollar demand during the Christmas period as contributors.
2. BDC Involvement
   Aminu Gwadabe, President of the Association of Bureaux De Change Operators of Nigeria (ABCON), praised EFEMS but called for increased liquidity in the retail FX market. He urged the CBN to utilize Bureaux De Change (BDCs) strategically to stabilize the exchange rate.

“BDCs can effectively manage volatility and help achieve national budget targets,” Gwadabe asserted.

Persistent Challenges

Despite its successes, EFEMS faces hurdles, particularly the presence of an unregulated black market. Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise (CPPE), highlighted the ongoing challenge of speculation and manipulation.

“The measures taken by the CBN are yielding positive results, but it is a work in progress,” Yusuf noted. “Speculators are constantly devising new tricks, requiring continuous vigilance.”

A Glimpse of Hope

The naira’s recent gains are a respite following a turbulent 2024, during which the currency lost 40.9% of its value despite increased external reserves. EFEMS, though still in its infancy, signals a critical shift toward a more stable and transparent FX market. Analysts believe that with sustained reforms and robust oversight, the naira is on a promising path to recovery.