The Central Bank of Nigeria will automate foreign exchange (FX) trading from December, replacing the 10-year-old over-the-counter system to increase transparency and liquidity in the foreign exchange market.
The move comes as part of the Central Bank of Nigeria’s (CBN) broader efforts to address inefficiencies in the foreign exchange market, which has long been plagued by illiquidity, opacity and multiple exchange rates. By introducing the Electronic Foreign Exchange Matching System (EFEMS), the CBN aims to create a more efficient and accessible market for all participants.
The biggest benefit of automation is increased transparency. Under the current system, it is difficult to grasp the actual supply and demand situation in the foreign exchange market, leading to market distortions that favor insiders.
EFEMS provides real-time data on foreign exchange trading to the public, businesses, and international investors, giving them a clear view of market conditions and enabling them to make informed decisions. This change is expected to level the playing field and reduce opportunities for bias and favoritism in foreign exchange allocation.
Additionally, automation increases efficiency. The manual, paper-based systems currently in use often result in delays that are frustrating for market participants. With EFEMS, transactions are processed much faster, eliminating these bottlenecks and allowing businesses that rely on foreign exchange to run smoothly.
While automation of foreign exchange trading will not directly solve all of Nigeria’s currency problems, it is expected to more accurately reflect the value of the naira by aligning the official exchange rate with market realities.
Over-reliance on oil exports has made the naira vulnerable to external shocks, resulting in multiple devaluations. If the new system increases market transparency, it could narrow the gap between the official market rate and the parallel market rate, leading to stabilization of the naira. Still, EFEMS faces hurdles such as stability of the technology, wide adoption by users, and continued independence of the CBN in enforcing the policy. Automating foreign exchange trading is an important step towards creating a fairer and more efficient Nigerian market. If successfully implemented, this reform could restore investor confidence, reduce corruption and strengthen the naira, helping Nigeria move towards a more sustainable economic future.
