- The Central Bank of Nigeria governor, Olayemi Cardoso, says an electronic FX matching system will address exchange rate disparity, ensuring the naira’s true value
- Cardoso said the system will also help counter disinformation in the forex market
- He said banks have a role to play in ensuring forex stability
The governor of the Central Bank of Nigeria (CBN), Olayemi Cardoso, says the electronic foreign exchange (forex) matching system will soon address the disparity between the current naira-to-dollar exchange rate and the naira’s true market value.
Cardoso stated this at the Bankers’ Committee annual dinner held on Friday, November 29, in Lagos.
He noted that the forex matching system will stabilise the market, as the CBN will better monitor it and intervene where necessary.
The CBN governor noted that the current exchange rate is brought about by desperate buyers, does not genuinely reflect market dynamics, and does not represent the naira’s true value.
He said, “The current USD exchange rate reflects the price that the most desperate buyers are willing to pay, and this does not represent the true market value of the naira.
“The introduction of the FX matching system will enable the Central Bank to monitor the market more effectively and intervene where necessary. This will significantly improve transparency and provide a more accurate reflection of the naira’s value.”
FX matching system will counter market disinformation
Cardoso also noted that the matching system will be crucial to countering disinformation in the market, especially supply shortfall, which he said has caused unnecessary panic in the market.
He noted that the matching system will address such issues as rates will reflect actual market activity.
The CBN governor added that the measures adopted by the apex bank will create a more functional and predictable forex market for businesses and individuals.
Cardoso said, “Disinformation about a supposed demand-supply gap has created panic that is unwarranted. The FX matching system will help put an end to this by ensuring that rates reflect actual market activity.”
Banks have a role in forex market stability
On the part of banks, Cardoso noted that Nigerian banks have a role to play as the forex market cannot function optimally if it relies solely on the CBN’s interventions.
He called on financial institutions to develop unique solutions tailored to meet the needs of businesses and individuals and help them manage risks.
Cardoso said, “An FX market defined solely by when and how the Central Bank buys or sells dollars is inadequate for the needs of a dynamic economy like Nigeria’s. Now is the time for banks to step up to their intermediation and market-making responsibilities.”
CBN’s forex stabilisation efforts
The apex bank has made efforts to stabilise and unify the exchange rate through the implementation of reforms and policies.
First, the CBN floated the naira in June 2023, which allowed market forces to determine the currency’s value on a willing-buyer-willing-seller model. It said the policy is to close the arbitrage between the parallel and official forex windows.
Cardoso has often said the decision to float the naira was a tough but necessary step to unify the exchange rate and align the rate with market realities, thereby halting arbitrage and speculation that undermined market trust.
He also reiterated the apex bank’s commitment to stabilising the economy, curbing inflation and restoring investor confidence.
Another step taken by the CBN to tackle market distortion was the clearing of valid forex backlogs to the tune of $7 billion, which it said is to ensure forex liquidity and stabilise the exchange rate, thereby curbing imported inflation and spurring confidence in the banking system and the economy.
The apex bank also lifted an eight-year restriction on accessing forex for the importation of 43 items, including rice, vegetable oil, poultry products, etc.
The CBN said the restriction led to an approximate revenue loss of $1.4 billion, or $275 million annually, between 2015 and 2019.
CBN mandates $100,000 minimum trade in new guidelines for EFEMS forex platform
Meanwhile, TheRadar reported that the Central Bank of Nigeria mandated a minimum trade of $100,000 on its Electronic Foreign Exchange Matching System (EFEMS) platform in new guidelines for interbank foreign exchange (forex) transactions, effective November 25, 2024.
This is contained in a new directive signed by Dr Omolara Duke, the Director of the Financial Markets Department of the CBN, which also sets incremental clip sizes of $50,000, which participants must adhere to in the new guideline.
