Nigeria’s Foreign Exchange Market Experiences Record Turnover Growth

Nigeria’s foreign exchange (FX) market surged in turnover to ₦110.35 trillion in the first seven months of 2024.

This increase represents a 171.46% growth from the ₦40.65 trillion recorded during the same period in 2023.

The surge highlights a significant rebound in market activity and underscores growing confidence in the Nigerian economy amid ongoing reforms by the Central Bank of Nigeria (CBN).

According to the latest FMDQ Markets Monthly Report, the resurgence in FX market turnover reflects the impact of various policy measures implemented by CBN Governor Olayemi Cardoso.

Key among these reforms is the unification of the local currency, which has facilitated a more liberal trading environment for the naira against major currencies like the dollar.

The substantial increase in FX turnover is a testament to the effectiveness of the CBN’s strategies to improve liquidity and reduce risks in the financial system.

For instance, the total FX turnover in January 2024 stood at ₦21.07 trillion, showing a 41.16% increase from December 2023 and a 61.58% rise from January 2023.

This momentum continued with February 2024’s turnover reaching ₦40.31 trillion, reflecting a 91.31% month-on-month growth.

March 2024 saw a notable increase to ₦48.87 trillion, driven by a 21.22% rise from February and a remarkable 100.67% year-on-year growth.

Although April 2024 experienced a slight decline to ₦27.50 trillion, this was still a 119.0% increase from the previous year.

The trend resumed upward in May, with turnover climbing to ₦41.69 trillion, up by 51.62% from April and a staggering 164.26% from May 2023.

Throughout June and July 2024, the FX turnover continued to perform strongly, reaching ₦28.43 trillion and ₦30.63 trillion, respectively.

These figures reflect the ongoing robustness of Nigeria’s FX market despite fluctuations in the naira’s value.

As of July 2024, the naira had depreciated by 57.5% year-to-date, trading at ₦1,560.32 to the dollar, highlighting the volatility and challenges faced in the FX market.

The increased turnover is attributed to the CBN’s strategic reforms, including the unification of multiple exchange rate windows and the removal of rate ceilings on international transactions.

The CBN’s interventions have also included adjustments to the Monetary Policy Rate (MPR) and new regulations on foreign exchange sales, which have collectively aimed to stabilize the naira and attract foreign capital.

Analysts at United Capital note that these reforms have closed the gap between the official and parallel exchange rates and enhanced market transparency.

They also emphasize that while the FX turnover growth is promising, sustained efforts are necessary to maintain liquidity and prevent any widening of the exchange rate differential.

In addition to these measures, the CBN has mandated banks to limit their foreign exchange exposure and has undertaken to clear backlogs of unpaid FX forwards. These steps are designed to further stabilize the market and foster confidence among investors.

The FMDQ report underscores that the increase in FX turnover has played a crucial role in Nigeria’s overall financial instruments market, contributing about 46.3% to the total ₦238.5 trillion transactions recorded in the first seven months of 2024.