The Nigerian naira has broken new ground by trading below N2,000 to the British pound for the first time in five months, marking a significant shift in the country’s foreign exchange market.
The currency began the week at N2,225 to the pound but concluded at N1,980, showing a remarkable gain of N245 over the course of the week.
This impressive performance in the parallel market, where the pound stood at N1,980 on Saturday morning, has been attributed to ongoing reforms in the Nigerian currency market. These reforms have helped improve market conditions, which have been struggling due to challenges such as weak oil production, fiscal issues, low export capacity, and speculative practices.
The recent recovery in the naira’s value is largely due to a combination of factors, including the Central Bank of Nigeria’s (CBN) proactive measures. These included the issuance of a successful Eurobond and the implementation of a new trading platform, Bloomberg BMatch, aimed at improving the effectiveness and transparency of the foreign exchange market.
The platform, which was launched on November 26, 2024, provides an automated trade-matching system designed to ensure market integrity and foster better price discovery.
The effects of the Bloomberg BMatch system have already been noticeable, with a reduction in speculative activities and a noticeable improvement in the naira’s performance in the black market. As a result, speculators are finding it increasingly difficult to adjust to the new system, which has led to a greater willingness to sell dollars and reduced hoarding.
Additionally, the CBN’s introduction of a centralized pricing mechanism and a set of new rules for the Electronic Foreign Exchange Matching System (EFEMS) has further streamlined operations and enhanced confidence in the naira. The new system mandates that all foreign exchange transactions be processed through a central platform to ensure transparency and provide public access to daily exchange rates.
This improvement in the value of the naira also highlights the continued strong financial relationship between Nigeria and the United Kingdom. The UK was responsible for nearly 50% of Nigeria’s capital investments in the first half of 2024, reinforcing the economic ties between the two nations. The UK’s significant investments over the past decade continue to make it Nigeria’s primary source of capital imports, with $2.93 billion invested in the first half of 2024 alone.
While the British pound has enjoyed a period of relative stability, gaining against both the euro and the U.S. dollar, the strength of the pound and the resilience of Nigeria’s economy suggest the possibility of more favorable exchange rates in the near future. As Nigeria’s foreign exchange market continues to evolve, the naira’s strengthened position may signal a promising direction for the nation’s economic recovery and growth.
