The Nigerian Naira has experienced a significant rebound against the U.S. dollar in recent weeks, a development attributed to improved external reserves and strategic interventions by the Central Bank of Nigeria (CBN).
The Naira appreciated by N127, closing at N1,535 per dollar on Friday, compared to N1,660 at the start of last week.
In a statement issued on Sunday, Muda Yusuf, Director of the Centre for Promotion of Private Enterprise (CPPE), emphasized that a combination of factors, including an increase in Nigeria’s external reserves and reforms in the FX market, has bolstered the currency’s performance.
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Yusuf explained that Nigeria’s external reserves recently crossed the $40 billion threshold, which has given the CBN greater leverage to stabilize the market through targeted interventions.
“An improvement in our reserves, reaching $40 billion, implies that the CBN has more power to intervene in the market,” Yusuf said. “In truth, the CBN has been intervening to stabilize the currency.”
Beyond reserve strength, Yusuf noted that the Naira’s appreciation reflects enhanced investor confidence, fueled by the federal government’s fiscal and monetary reforms.
“Now, we are beginning to see a strengthening of the currency, so the level of our reserves has contributed to this as it elevates the confidence of foreign investors,” he added.
The role of the CBN’s recent introduction of the Electronic Foreign Exchange Matching System (EFEMS) has been lauded. Designed to bring transparency and efficiency to Nigeria’s FX market, EFEMS has been touted as a transformative tool for stabilizing the Naira. The initiative aims to eliminate market distortions that have historically plagued Nigeria’s FX ecosystem by matching buyers and sellers of foreign exchange in a more structured and transparent environment.
The system launched as part of the broader FX market reforms initiated in June 2023, has been described as a potential game-changer for Nigeria’s forex market. It represents a shift from the opaque processes that previously characterized the market, which were often criticized for enabling arbitrage and speculative trading.
Under EFEMS, transactions are conducted electronically, with market players gaining access to real-time pricing, fostering greater transparency and accountability.
The CBN has positioned EFEMS as a cornerstone of its efforts to attract autonomous inflows and boost market confidence. According to analysts, the system has already begun to bear fruit, with increased inflows from international money transfer operators and exporters adding to the market’s liquidity.
Yusuf observed that the recent success of the Naira is also linked to reforms in the foreign exchange market that have encouraged inflows from independent sources.
“In the last few months, as a result of reforms in the foreign exchange market, we are seeing a consistent improvement in autonomous foreign exchange inflow in the country, especially from the international money transfer operators,” he noted.
In addition to the rise in reserves and the implementation of EFEMS, Nigeria’s recent success in the international financial market has played a role in bolstering the Naira. Economic experts have highlighted the federal government’s Eurobond issuance, which raised $2.2 billion, as a key contributor to the Naira’s appreciation. This influx of foreign capital has reduced pressure on the FX market and provided a buffer for currency stabilization efforts.
However, other benefits of the naira’s gain are yet to be realized. A stronger currency is expected to alleviate inflationary pressures, particularly by reducing the cost of imported goods and services. It also enhances Nigeria’s attractiveness to foreign investors, who view currency stability as a critical factor in making investment decisions.
There is also concern about sustaining the momentum, which analysts say requires consistent policy implementation and further diversification of the country’s revenue sources. Yusuf cautioned that while the gains are encouraging, they must be built upon through continued reforms and measures to attract foreign exchange inflows.
He indicated that the CBN must continue with reforms and maintain a steady improvement in foreign exchange inflows to sustain this positive trend.
For now, the Naira’s resurgence offers a potential measure of relief for Nigerians facing economic pressures. However, the path to long-term stability will require sustained efforts to ensure that these gains are not only preserved but also amplified to support broader economic growth.