The liberalisation of Nigeria’s foreign exchange (forex) market has emerged as a crucial driver in restoring investor confidence and stabilising the nation’s economy. Since the reforms introduced by the Central Bank of Nigeria (CBN) in June 2023, there has been a marked improvement in forex market stability, currency valuation, and transparency, creating a more attractive environment for both local and foreign investors.
Prior to the reforms, Nigeria’s forex market suffered severe volatility primarily due to a shortage of US dollars, driven by plummeting crude oil prices and reduced production. This crisis left the CBN unable to meet foreign exchange demands, leading to a backlog of over $7 billion in unsettled obligations. The ripple effect was devastating: manufacturers struggled to finance imports for raw materials, many foreign companies could not repatriate profits, and some chose to exit the market altogether.
Such uncertainty complicated business planning and deterred investment, as investors generally avoid environments where currency risk is high and market dynamics unpredictable.
The introduction of a “willing buyer, willing seller” regime by the CBN has helped clear this backlog and eased access to foreign currency. Manufacturers now find it easier to fund their letters of credit, and the local currency, the naira, has shown encouraging signs of strengthening — appreciating from a low of N1,609/$ on May 9, 2025, to N1,590.75/$ by May 28.
The narrowing gap between the official and parallel market exchange rates—from a wide disparity in previous years to just about N35 difference recently—signifies enhanced market transparency and reduced arbitrage opportunities. This is a major breakthrough in tackling the problem of forex roundtripping that plagued Nigeria’s forex market for years.
Investor sentiment has been buoyed by these improvements, reflected in oversubscribed domestic debt auctions and declining yields on Nigeria’s $1.5 billion Eurobond. Yields recently dropped to 9.69%, their lowest since the bond’s launch, signaling growing market trust.
Prominent financial analysts credit this optimism to the CBN’s strategic interventions, including a $190.4 million injection into the market and policies that have sustained forex liquidity. Dr. Ifeanyi Uba, Head of Research at Commercio Partners, noted that despite global economic uncertainties, the naira’s performance has been more orderly and predictable.
Portfolio managers and market strategists echo this sentiment, highlighting that Nigeria’s currency reforms and improved forex market functioning have made the country more attractive to foreign capital inflows. These reforms have helped reduce exchange rate volatility—a critical risk factor for investors in emerging markets.
Nigeria’s external reserves, which had suffered drawdowns earlier in the year, have rebounded to about $38.9 billion as of mid-May, sufficient to cover over seven months of imports. This recovery has bolstered Nigeria’s credit ratings, with Fitch Ratings upgrading the country’s long-term foreign-currency issuer default rating to ‘B’ with a stable outlook in April 2025.
CBN Governor Olayemi Cardoso reaffirmed the bank’s commitment to sustaining reforms aimed at reducing inflation, stabilising the naira, and diversifying the economy. He acknowledged the challenges but remains optimistic about the long-term benefits of the current policies.
Financial experts warn that while forex reforms are yielding positive results, continued policy discipline, structural reforms—especially in power supply and the oil sector—and transparent management of the forex system are essential for sustainable growth.
Bismarck Rewane, Managing Director of Financial Derivatives Company Limited, pointed out that Nigeria’s economic recovery depends on confidence, transparency, and robust institutional reforms rather than on revenue alone.
The early signs of stability in the forex market, facilitated by the introduction of electronic foreign exchange matching systems, indicate a hopeful future for Nigeria’s economy. As the reforms deepen and macroeconomic indicators improve, the country is poised to attract more foreign investment and enhance economic resilience.