Market News

By Chinelo Obogo

The naira experienced a remarkable rally against the US dollar in the parallel market, closing at N1,640/$1 on Wednesday, December 4, 2024. It marks a robust 5.2% gain, or N90, compared to the N1,730/$1 recorded in the previous trading session.

The surge comes in the wake of the newly launched Enhanced Foreign Exchange Market System (EFEMS), which stakeholders believe will bring much-needed transparency and regulatory oversight to Nigeria’s forex market.

Inflows exchanged at N1,640/$1, while cash transactions closed slightly higher at N1,664/$1 in the parallel market. The official market exchange rate settled at N1,595/$1, while the Central Bank of Nigeria (CBN) reported a slightly higher N1,613.69/$1 on its platform.

The new system consolidates previously fragmented forex trading windows, including the Investors & Exporters (I&E) FX Window, into a centralized platform. The platform aims to simplify transactions, improve liquidity, and enhance transparency. Reports suggest trading volumes on the first two days of EFEMS were robust, with supply reportedly outstripping demand, an optimistic sign for market stability.

The EFEMS platform is part of the CBN’s wider strategy to address inefficiencies in Nigeria’s foreign exchange market. In a circular dated November 29, 2024, the CBN announced revised guidelines for the Nigeria Foreign Exchange Market (NFEM), which include: centralised pricing where all FX transactions must now be conducted through the EFEMS platform, which will also publish daily FX rates for public access.

Another the integration of multiple FX windows, such as the I&E Window, SME Window, and Invisible Window, into a single, unified system. There is now stricter compliance requirements and transparency measures to build trust and attract investors.

While the EFEMS platform has shown promising early results, experts caution that sustaining its momentum will depend on a delicate balance of supply and demand, as well as consistent policy backing.

According to market analysts, the success of EFEMS could redefine Nigeria’s FX landscape, boosting liquidity and fostering confidence among market participants. However, they warn that the system’s long-term efficacy will require robust government support and a stable macroeconomic environment.

With the CBN’s comprehensive reforms, Nigeria’s forex market may be on the cusp of a new era, one characterized by greater efficiency and fewer arbitrage opportunities. As the EFEMS platform gains traction, stakeholders remain cautiously optimistic about its potential to stabilize the naira and restore investor confidence.