CBN to automate foreign exchange trading by December

The Central Bank of Nigeria (CBN) is set to automate its foreign exchange (FX) trading system by December 2024, replacing the current over-the-counter (OTC) trading system that has been in place for nearly a decade. This move is part of the CBN’s broader efforts to increase transparency in the FX market and reduce the distortions that have long plagued Nigeria’s currency system.

According to a circular issued by the CBN on October 2, the new automated system will enable a more market-driven exchange rate, providing real-time access to exchange data for the public. The CBN hopes this shift will help curb speculative trading activities, enhance liquidity in the FX market, and allow the central bank better oversight.

“This development is expected to reduce speculative activities, eliminate market distortions, and give the CBN improved oversight,” the bank stated in its announcement.

Ahead of the official launch in December, the CBN plans to conduct a two-week test run of the new system in November, though specific dates have not yet been disclosed. The test run will allow market participants to familiarize themselves with the system and provide feedback before full implementation.

This automation initiative is part of Nigeria’s continued efforts to address the longstanding challenges in its FX market. Back in 2017, during a period of economic crisis, Nigeria imposed strict currency controls and introduced multiple exchange rate regimes. This included the OTC trading system, which, while initially designed to stabilize the naira, eventually restricted dollar supply and created inefficiencies in the market. Under this old system, banks could only execute buy or sell orders from customers, limiting liquidity and affecting the economy negatively.

With the upcoming system, the CBN will publish real-time prices as well as buy and sell orders, offering a clearer view of market activity and helping to restore investor confidence. The goal is to ensure that Nigeria’s FX market is driven by supply and demand, rather than controlled rates, allowing for a more transparent and functional currency trading environment.

As of October, data from LSEG showed the naira trading at a record low of 1,634 to the U.S. dollar, reflecting the severe pressure the currency has faced since the liberalization of Nigeria's FX market last year. The transition to an automated trading system is expected to alleviate some of these pressures and foster a more stable and transparent FX market in the long term.