The official foreign exchange market in Nigeria has witnessed a significant increase in turnover, reaching $23.29 billion within the first six months of 2024. This rise follows a series of strategic reforms by the Central Bank of Nigeria (CBN), as uncovered by findings from The PUNCH.
During this period, the naira traded against the United States dollar at rates fluctuating between N980 and N1,500 per dollar, with the currency closing at N1,485 against the dollar at the end of trading on Friday.
Data from the FMDQ Securities platform, which tracks official foreign exchange transactions, revealed a 15% increase, or $0.6 billion, in forex turnover from January to June 21st. This increase was primarily driven by transactions through the Nigerian Autonomous Foreign Exchange Market (NAFEM) facilitated by Deposit Money Banks. The main forex sellers in NAFEM include commercial banks, the CBN, and international oil firms.
A detailed analysis showed that forex transactions began at $4 billion in January, surging by 46.5% to $5.14 billion in February. However, the figure dropped to $4.7 billion in March and further to $2.5 billion in April. In May, the market experienced a substantial increase in dollar sales by 84%, reaching $4.60 billion.
A closer look at the figures highlighted a notable trend: in January, the forex market turnover was $4 billion, which increased by $3.3 billion within two weeks of implementing a new rule in February. This rule mandated banks to sell their excess dollar stock within 24 hours to enhance market liquidity. Subsequently, the market recorded $890.65 million between February 19 and 23, and $953.02 million in the week ending March 1.
March saw improved liquidity with $4.7 billion in transactions, but April experienced a sharp decline by 51% to $2.5 billion, coinciding with a depreciation of the naira. Despite a surge in dollar supply to $4.60 billion, the naira weakened in May. June’s forex trading amounted to $2.29 billion within the first 12 days of trading activities.
The increased liquidity in the forex market is attributed to several key reforms implemented by the CBN. These include:
- Unification of exchange rate windows.
- Liberalisation of the forex market.
- Clearing of FX backlog obligations for banks and airlines.
- Implementation of a Price Verification System.
- Imposition of limits on banks’ Net Open Position.
- Removal of the daily cap of N2 billion on remunerable Standing Deposit Facility.
- Overhaul of the Bureau De Change segment.
Forex turnover is a crucial indicator of market activity, reflecting the total value of all completed foreign exchange transactions within a given timeframe. High turnover rates signal an active market with numerous participants, indicating investor confidence and economic stability.
In addressing issues such as excessive foreign currency speculation and hoarding, the CBN has played a pivotal role. The bank has also cleared a significant portion of the foreign exchange backlog, paying $1.5 billion to settle obligations to bank customers.
Despite the relative stability of the naira over the past month, trading between N1,476 and N1,485 against the dollar, concerns about sustainability persist. This stability has been largely due to low demand and increased dollar inflows, bolstering Nigeria’s external reserves.
The ongoing reforms and strategic policies by the CBN have undeniably transformed the forex market, ensuring enhanced liquidity and fostering a more stable economic environment. However, continuous monitoring and adaptive strategies will be crucial in maintaining this momentum and addressing emerging challenges in the forex market.
