Central Bank of Nigeria (CBN) Governor, Olayemi Cardoso, has revealed that the soon-to-be-introduced electronic FX matching system will address the disconnect between the current naira-to-dollar exchange rate and the naira’s true market value.
Speaking at the Bankers’ Committee Annual Dinner held on November 29, 2024, at Eko Hotel, Lagos, Cardoso emphasized that the system would enhance price discovery and restore stability to the foreign exchange (FX) market.
According to Cardoso, the naira’s current exchange rate reflects the actions of desperate buyers rather than genuine market dynamics.
“The current USD exchange rate reflects the price that the most desperate buyers are willing to pay, and this does not represent the true market value of the naira,” he said. The FX matching system, he noted, will correct these distortions, creating a more transparent and stable FX market.
Tackling FX Market distortions
The electronic FX matching system is part of broader efforts by the CBN to unify Nigeria’s exchange rate and eliminate market distortions.
Over the past year, the CBN has implemented significant reforms, including clearing outstanding foreign exchange obligations, which have bolstered confidence among businesses, particularly manufacturers and airlines.
“The introduction of the FX matching system will enable the Central Bank to monitor the market more effectively and intervene where necessary. This will significantly improve transparency and provide a more accurate reflection of the naira’s value,” Cardoso stated.
Countering disinformation
Cardoso also addressed concerns over the widespread narrative of a persistent demand-supply gap in the FX market, which he believes is fueling unnecessary panic. He emphasized that such disinformation has distorted perceptions of the FX market’s true state.
“Disinformation about a supposed demand-supply gap has created panic that is unwarranted. The FX matching system will help put an end to this by ensuring that rates reflect actual market activity,” he explained.
The governor further reassured stakeholders that these measures will create a more functional FX market where businesses and individuals can operate with confidence.
Role of Banks in stabilizing the FX Market
Cardoso highlighted the critical role that Nigerian banks must play in ensuring the success of the FX reforms. He pointed out that a well-functioning FX market cannot rely solely on the Central Bank’s periodic interventions.
“An FX market defined solely by when and how the Central Bank buys or sells dollars is inadequate for the needs of a dynamic economy like Nigeria’s. Now is the time for banks to step up to their intermediation and market-making responsibilities,” Cardoso stated.
He urged financial institutions to actively provide tailored solutions to businesses and individuals, enabling them to manage risks and meet their operational needs effectively.
Strengthening Market Confidence
- With the rollout of the electronic FX matching system, the CBN aims to foster greater stability and predictability in the FX market.
- By addressing speculative distortions and ensuring that exchange rates are driven by real demand and supply, the naira is expected to better reflect its true value.
- Cardoso reiterated the CBN’s commitment to maintaining price stability and creating a policy environment conducive to economic growth.
- He expressed optimism that the new measures would restore confidence in Nigeria’s FX market and encourage long-term investments.
The FX matching system, which has been successfully implemented in other markets, is set to launch in the coming months, signalling a significant step toward achieving transparency and stability in Nigeria’s foreign exchange landscape.