Currency traders under the Association of Bureau De Change Operators of Nigeria (ABCON) have issued a warning that foreign exchange speculators may resist the rapid appreciation of the Naira to minimize their losses. However, the association has called on the Central Bank of Nigeria (CBN) to maintain the momentum of recent forex market reforms while discouraging illegal practices such as speculation and currency substitution.
In a chat with Nairametrics, ABCON President Aminu Gwadebe emphasized the need for the CBN to strengthen its partnership with Bureau de Change (BDC) operators, especially in areas where market volatility persists. Gwadebe’s comments followed the Naira’s significant gains in both the official and parallel markets after three consecutive days of appreciation triggered by the introduction of the Enhanced Foreign Exchange Market System (EFEMS).
Forex speculators face mounting losses
The Naira’s rapid appreciation has created turmoil for speculators in the parallel market, where unofficial forex trading occurs. With the Naira gaining value faster than speculators can sell, many are incurring significant losses.
Gwadebe noted: “The market is dull. Demand is very weak, while supply is huge. Speculators are already experiencing significant losses, and I can see them resisting the appreciation to cover these losses. The CBN must sustain the momentum, discourage speculation, and engage BDCs in volatile segments of the market.”
He also questioned whether the sharp appreciation aligns with the CBN’s policy framework but expressed optimism about the bank’s ability to stabilize the market.
When asked whether the CBN has sufficient forex reserves to sustain its intervention, Gwadebe expressed confidence in the bank’s liquidity position, bolstered by inflows from various sources.
He added: “The CBN has enough liquidity to control the market. However, the EFEMS platform should be more inclusive. Instead of using aggregators for exchange rates, all players should post their buying and selling rates in real-time, accessible to the public. The system needs to be democratized and fully transparent.”
The EFEMS platform, launched on December 2, 2024, is designed to address inefficiencies and opacity in Nigeria’s forex market. By centralizing forex trading and improving price discovery, EFEMS has already contributed to the Naira’s appreciation and restored confidence in the system.
Revised guidelines impacts forex market
The CBN’s recent revisions to the Nigerian Foreign Exchange Market (NFEM) guidelines, effective November 29, 2024, represent a major overhaul of the country’s FX operations. These guidelines consolidate multiple FX windows, redefine participant roles, and implement stricter compliance measures to ensure transparency.
Under the new framework, all FX transactions are priced through EFEMS, which publishes daily exchange rates for public access. This system replaces the fragmented approach previously used, including the Investors & Exporters (I&E) Window and the SME Window.
Additionally, licensed BDC operators can now purchase foreign exchange directly from authorized dealers. This inclusion is part of the CBN’s efforts to streamline the FX market, ensure the Naira reflects its true value, and balance accessibility with effective regulation.
Rising confidence in the forex market
Gwadebe highlighted how the recent reforms have positively impacted both BDC operators and the broader Nigerian economy. He explained: “The EFEMS platform has brought transparency and improved regulatory oversight. Licensed BDC operators are committed to supporting the Naira’s appreciation as it benefits both our business operations and the economy.”
He also pointed out the significant dollar supply entering the market due to the “fear of the unknown” surrounding the EFEMS launch, as well as the limited availability of Naira cash, which has constrained Naira-Dollar substitutions.
Gwadebe however praised the CBN’s efforts: “I am pleased that the CBN is implementing win-win policies that are inclusive and collaborative. The increasing confidence of both the public and market operators in the CBN’s monetary policies is driving the positive momentum for the Naira.”
