The Nigeria Naira has strengthened against the US dollar, with the official currency rate closing at ₦1,535/$1 on December 6, 2024, from the previous high of ₦1,750/$1, indicating a solid performance following three days of increases. The average intraday trading rate was ₦1,533, with a range of ₦1,510 to ₦1,575. The rate fell to as low as ₦1,570/$1 on the black market, with some dealers dumping at ₦1,500/$1, due to an excess of dollar supply and a decline in demand.
This reflects growing confidence in the naira and diminished speculative activity, narrowing the gap between official and Black Market rates to approximately 2.3%. A major factor in the Naira’s notable increase in value relative to the US Dollar is the Central Bank of Nigeria’s Enhanced Foreign Exchange Market System (EFEMS). This system has assisted in addressing long-standing imbalances in Nigeria’s forex market by emphasizing transparency and market-driven pricing. EFEMS has reduced speculative trading and enhanced market dollar liquidity through the elimination of preset exchange rates and the implementation of a more competitive bidding procedure.
Value of the naira has stabilized throughout markets.
More so, the CBN has also supplemented EFEMS with measures to lower the demand for foreign exchange, like promoting domestic Manufacturing and limiting access to foreign currency for imports that are not necessities. The EFEMS Infrastructure facilitates consolidated foreign exchange transactions, which improves transparency and reduces speculation. As a result, the value of the naira has stabilized throughout markets, indicating a change in the dynamics of Nigeria’s foreign exchange. According to analysts, the strength of the naira is changing market sentiment, as there is a greater preference for it over dollars
Some industry observers have also pointed out that the recent successful pricing of US$2.2 billion in Eurobonds notes maturing in 2031 (6.5-year) and 2034 (10-year) on the international capital markets on December 2, 2024, with $700 million and $1.5 billion placed in the 2031 and 2034 maturities, respectively, has had a significant impact on the recent appreciation of the Naira against the US dollar. The Nigerian government’s calculated action supported the nation’s foreign reserves and increased forex Market Liquidity by bringing in much-needed foreign exchange inflows.
Observers worry that the naira gains may not last long.
Overall, Nigeria’s foreign exchange reserves and exchange rate stability have benefited temporarily from the sale of these bonds, but sustaining this momentum will require comprehensive fiscal and structural reforms. For businesses that depend significantly on imports, this minimal gain in exchange rate is anticipated to lower operational expenses, which could cause consumer prices to decline. Foreign Investors have also been more optimistic as a result of the appreciation, seeing the CBN’s recent actions as an indication of increased economic stability.
Reactions among Nigerians have been mixed. Many residents applaud the progress and expect it would result in cheaper costs for imported goods and services. Skepticism still persists, though, as critics point to the ongoing Volatility in the foreign exchange market and fundamental problems in the larger economy. Nevertheless, it should be noted that the current rate of at ₦1,535/$1 is still high compared to around ₦430/$1 before the currency was floated last year. Some observers worry that the gains of the Naira may not last long if long-term reforms and Economic Diversification are not implemented.
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Due to its structural dependence, any short-term forex stability brought about by operations such as dollar injections, Eurobond sales, or refineries may not be sufficient to resolve the currency’s underlying vulnerabilities. Experts warn that while EFEMS has been hailed as a positive move, its long-term viability hinges on preserving macroeconomic stability, boosting Export earnings, and keeping the Supply and Demand for foreign exchange in balance. These steps are essential to guaranteeing that the naira further strengthens and that present gains in the value of the naira extend into wider economic advantages.