The naira has seen remarkable gains since the introduction of the Electronic Foreign Exchange Matching System (EFEMS) by the Central Bank of Nigeria (CBN), with the currency trading at N1,587.29/$1 in the official market and N1,640/$1 in the parallel market as of Thursday.
EFEMS operates through Bloomberg’s BMatch system, facilitating spot transactions between the naira and the U.S. dollar, with a minimum trade size of $100,000. It aims to bring greater transparency and accountability to FX transactions by integrating seamlessly with banks’ systems and generating consolidated trade statistics.
CBN Governor Olayemi Cardoso has called EFEMS a “pivotal reform,” describing it as a critical step toward market transparency and stability.
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“The unification of the exchange rate is a pivotal reform, but it marks just the beginning,” he said at the recent Chartered Institute of Bankers of Nigeria (CIBN) annual dinner. “The electronic FX matching system enhances transparency, restores confidence, and is expected to attract new investments.”
The gains recorded since the launch of EFEMS have been impressive. The naira, which had stagnated at N1,745/$1 for over a month in the parallel market, began appreciating on Tuesday, trading at N1,720/$1 and further strengthened to N1,640/$1 by Thursday.
In the official market, rates have seen similar improvements, starting at N1,662.77/$1 on Monday and closing the week at N1,587.29/$1. Analysts attribute this progress to the platform’s ability to eliminate counterparty risks and ensure market discipline.
However, while the new platform has been hailed for its potential to bring transparency and efficiency to Nigeria’s volatile foreign exchange market, many remain skeptical about whether this improvement is sustainable.
This is because it’s not the first time the naira has strengthened on the back of a policy initiative from the CBN. Similar measures in the past have initially provided some relief but ultimately failed to halt the currency’s freefall. The backdrop of previous disappointments raises questions about whether EFEMS will achieve what its predecessors could not.
Market watchers recall past initiatives such as the Investor and Exporter (I&E) FX window introduced in 2017, which initially buoyed the naira but failed to withstand mounting pressure from structural weaknesses in Nigeria’s economy. The parallel market soon reverted to a cycle of volatility, undermining gains made at the official window.
Tilewa Adebajo, CEO of CFG Advisory, acknowledged the importance of EFEMS but warned against premature conclusions.
“The new foreign exchange matching system is a welcome development for price discovery to try and put some sophistication in our markets and remove discrepancies,” he told ThisDay. “However, it’s too early to attribute naira appreciation solely to EFEMS. Let’s see how it pans out.”
Similarly, Bismarck Rewane, CEO of the Financial Derivatives Company, earlier expressed concern about the inability of the CBN initiatives to boost the naira’s performance in the FX market.
“We anticipate a 10 percent appreciation which can take you to about N1,550/$1 in 2025,” Rewane said. “But nothing suggests or justifies a currency losing half its value without major external shocks such as an earthquake, war, or natural disaster. The question remains what is responsible for this significant decline?”
Other Experts Weigh In
Sam Chidoka, Managing Director of Anchoria Advisory Services, highlighted the transparency EFEMS brings to the market in an interview with ThisDay.
“This system introduces some sort of market-making into the FX market,” Chidoka said. “When you have that, then the result is more market-driven pricing. It’s a step in the right direction.”
“What EFEMS has done is that it automatically is redefining the market. It’s a way of sanitizing the FX market. All the major players, including the Bureau De BDC guys, who are serious and know what they’re doing, can participate in this market. It’s also about digitizing the system. Prices will be transparent,” said Ayokunle Olubunmi, Head of Financial Institutions Ratings at Agusto & Co.
Concerns Over Sustainability
However, concerns persist about the sustainability of these gains, particularly in light of Nigeria’s underlying economic challenges. Limited FX supply, over-reliance on oil revenues, and a high import bill continue to exert pressure on the naira.
However, Cardoso remains optimistic about EFEMS’ potential to transform Nigeria’s FX market.
“The introduction of the electronic matching system will correct distortions by enhancing the price discovery process,” he said. “Additionally, it will significantly boost the central bank’s oversight and intervention capabilities, ensuring a more stable and transparent foreign exchange market.”
For EFEMS to succeed where other initiatives have faltered, economists said the CBN must pair its reforms with broader structural adjustments to the economy. Without addressing the root causes of naira volatility, they note that EFEMS risks becoming another chapter in Nigeria’s long list of short-lived currency reforms.