Nigeria’s central bank will automate foreign exchange (FX) trading starting in December, replacing the decade-old over-the-counter system to enhance transparency and liquidity in its currency markets.
The move comes as part of the Central Bank of Nigeria’s (CBN) broader efforts to address inefficiencies in the FX 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 most significant benefit of automation will be increased transparency. Under the current system, determining the real state of supply and demand in the FX market has been difficult, leading to market distortions, with insiders holding an advantage.
With EFEMS, real-time data on FX transactions will be available to the public, businesses, and international investors, allowing them to see market conditions clearly and make informed decisions. This shift is expected to level the playing field, reducing opportunities for bias and favoritism in foreign currency allocation.
Moreover, automation will improve efficiency. The manual, paper-based system currently in use often results in delays that frustrate market participants. With EFEMS, transactions will be processed much faster, eliminating these bottlenecks and allowing smoother operations for businesses reliant on foreign exchange.
While automating FX trades will not directly resolve all of Nigeria’s currency challenges, aligning the official exchange rate with market realities is expected to more accurately reflect the naira’s value.
Over-reliance on oil exports has made the naira vulnerable to external shocks, resulting in multiple devaluations. If the new system fosters a more transparent market, it could help stabilize the naira by narrowing the gap between official and parallel market rates. Still, EFEMS faces hurdles, such as the technology’s stability, widespread user adoption, and the CBN’s continued independence in enforcing policies. Automating FX trades represents a significant step toward creating a fairer and more efficient Nigerian market. If well implemented, the reform could restore investor confidence, reduce corruption, and strengthen the naira—helping Nigeria move toward a more sustainable economic future.
