Bankers Explain Why Naira Is Strengthening Significantly Against The Dollar

Bankers Explain Why Naira Is Strengthening Significantly Against The DollarThe recent surge in the value of the Naira against major global currencies has been attributed to the newly implemented foreign exchange market system by the Central Bank of Nigeria (CBN). Bankers speaking to Vanguard credited the Naira’s appreciation to the launch of the Electronic Foreign Exchange Matching System (EFEMS) on December 2, 2024.....KINDLY READ THE FULL STORY HERE▶

In a circular to banks, the CBN mandated the use of Bloomberg’s BMatch platform as the EFEMS for forex trading. The directive urged banks to collaborate with Bloomberg representatives to ensure smooth onboarding and address any technical challenges, emphasizing the CBN’s commitment to enforcing compliance and imposing sanctions if necessary.

Impact of EFEMS on the Naira

For the first time since May 2024, the Naira experienced five consecutive days of gains across all segments of the forex market. By the weekend, it closed at N1,535 in the official market and N1,555 in the parallel market. Bankers explained that the new system has brought greater market transparency and more efficient trade matching.

One banking executive, speaking anonymously, remarked: “EFEMS provides real-time market insights, facilitating efficient trade matching and transparency. Since its implementation, we’ve seen the Naira appreciate, supported by CBN interventions on the platform. While long-term sustainability is uncertain, this could bring some market equilibrium in the future.”

The EFEMS system has notably reduced the margin between the official and parallel market rates, narrowing it to N20 per dollar, down from N118 per dollar last weekend.

Naira’s Strong Weekly Performance

The Naira’s gain of N168, or a 9.8% appreciation, marks the largest single-week increase this year. After enduring a tough year, the Naira had faced consistent depreciation in the official market, falling from N907.11 per dollar in January to a high of N1,730 in October. However, from November onward, the Naira began to stabilize, retreating to the N1,600 range. The parallel market also saw a sharp decline, with rates reaching N1,775 per dollar by the end of November.

Black Market Insights

Parallel market traders have noted an unusual surge in dollar availability, leading some to struggle with selling their stock. Mr. Yakubu Giwa, a black market trader, explained: “The Naira has appreciated to around N1,500 per dollar, and many traders are hesitant to buy more dollars due to fears of further appreciation. Seasonal inflows from the diaspora and increased local spending ahead of the festive season are driving this trend.”

Naira Strengthens Across Other Currencies

The Naira’s appreciation is not limited to the US dollar; it has also strengthened against other major currencies, including the pound sterling and euro. Mr. Umoru Yahaya, a black market trader and gold dealer, noted: “The pound has dropped from N2,200 to N1,700, and the price of gold has decreased from N150,000 per gram to N120,000. Further declines are expected. Traders are cautious about stocking up on dollars or commodities to avoid potential losses.”

While the Naira’s recent rally has boosted optimism regarding market stability, traders and financial analysts remain cautious about its long-term sustainability.

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