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The era of foreign exchange (forex) speculation and market distortions in Nigeria may be nearing its end as the Central Bank of Nigeria (CBN) launches its much-anticipated Electronic Foreign Exchange Matching System (EFEMS). The system, which officially begins operation today, is expected to transform the forex market by enhancing transparency, curbing speculative activities, and fostering market stability.
This move aligns with the CBN’s broader policy reforms aimed at unifying exchange rates and restoring confidence in the forex market. The policy was confirmed over the weekend by CBN Governor Olayemi Cardoso, who emphasized the system’s role in addressing the acute forex crisis and its distortive impact on the naira.
Currently, the naira trades at N1,720 per dollar in the parallel market and below N1,663 per dollar in the official market.
How EFEMS Works
The EFEMS platform will provide real-time data on all forex transactions conducted in the interbank market, enabling the CBN to monitor activities and publish real-time prices and buy-sell orders. This enhanced oversight capability is expected to mitigate speculative trading and ensure a more accurate price discovery process for the naira.
In collaboration with the Financial Markets Dealers Association (FMDA), the CBN will publish rules of engagement for both authorized dealers and buyers. Additionally, the Nigerian FX Code and the Revised Market Operating Guidelines will provide further guidance for market participants.
Industry Reactions
President of the Association of Bureaux De Change Operators of Nigeria (ABCON), Aminu Gwadabe, described the launch of EFEMS as a “step in the right direction.” He noted that the system would introduce much-needed transparency, boost forex liquidity, and support price discovery in the retail market.
Gwadabe stated:
“The CBN has cleared post-recapitalization Bureau De Change operators to participate in the EFEMS platform, enhancing their role in the interbank market and fostering regulatory compliance. This move is in line with our advocacy for a unified and democratized foreign exchange market.”
Policy Impact and Economic Implications
Speaking at the Chartered Institute of Bankers of Nigeria’s (CIBN) 59th Annual Bankers Dinner, Governor Cardoso highlighted the EFEMS as one of the key gains of the exchange rate unification policy. He underscored its potential to:
- Eliminate market distortions,
- Reduce speculative activities,
- Instill transparency, and
- Enhance investor confidence in Nigeria’s financial markets.
The governor also revealed that the enabling environment created by the policy has led to a doubling of monthly diaspora remittances—from an average of $300 million in 2023 to nearly $600 million by August 2024.
“The introduction of EFEMS is expected to attract increased foreign and diaspora investments, paving the way for a more resilient and liquid forex market over the next 12 months,” Cardoso added.
He noted that the current exchange rate for the naira reflects the desperation of buyers rather than its true market value. The EFEMS platform, by enabling a market-driven exchange rate, is expected to correct these distortions and foster stability.
Next Steps for Stakeholders
The CBN has issued a circular directing authorized dealers to conduct all forex transactions through EFEMS, ensuring compliance with existing market regulations. The circular emphasized:
- The need for proper documentation,
- Training of market participants, and
- Systems integration ahead of the system’s go-live date.
The apex bank also assured stakeholders that the new system would enhance governance, transparency, and accessibility to exchange rates for the public, while reducing speculative trading and ensuring a level playing field for all participants.
Looking Ahead
Governor Cardoso called on banks to step up their intermediation and market-making responsibilities to provide effective solutions for customers and businesses. He stressed that the success of EFEMS will hinge on collaboration among all market players, particularly as Nigeria seeks to build a sustainable and dynamic foreign exchange ecosystem.
As the EFEMS system takes off, market participants and observers remain optimistic about its potential to stabilize the naira, improve forex liquidity, and restore confidence in Nigeria’s financial markets.
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