In a bold move aimed at restoring market credibility, the Governor of the Central Bank of Nigeria (CBN), Olayemi Cardoso, announced the introduction of the Electronic Foreign Exchange Matching System (EFEMS).
This new system, according to Cardoso, shows that the apex bank is fully committed to creating a fair, efficient, and transparent foreign exchange market in Nigeria.
The governor made this statement while addressing members of the Harvard Club of Nigeria in Lagos on October 6, 2024.
The introduction of EFEMS, first announced on October 3, is one of the key reforms that the CBN has initiated to rebuild trust in Nigeria’s financial system and curb issues like currency speculation and exchange rate manipulation.
“Trust is the Currency of Central Banking”
While speaking at the event, Cardoso made it clear that trust is at the core of central banking.
He stressed that without public confidence in the CBN, the effectiveness of the institution’s policies would be greatly diminished.
“Trust is the currency of central banking,” Cardoso declared.
“If the public loses trust in the institution, the efficacy of its policies diminishes. Our decision to implement the Electronic Foreign Exchange Matching System (EFEMS) is rooted in this understanding.”
The EFEMS system is designed to enhance transparency in foreign exchange transactions, ensuring that the market operates fairly and openly.
By implementing this system, the CBN hopes to provide better oversight of forex activities, thereby reducing corruption and speculative trading that have plagued Nigeria’s financial markets in recent years.
Cardoso explained that the CBN’s decision sends a strong message that the institution is serious about creating fair and efficient markets that work for all Nigerians.
Tough Decisions for the Greater Good
During his speech, the CBN governor acknowledged that being in a leadership position—especially in the face of Nigeria’s economic challenges—means making tough, and sometimes unpopular, decisions.
He said that restoring the CBN’s credibility, building public trust, and containing inflation are at the heart of his administration’s objectives.
“These are not just strategic goals,” Cardoso emphasized. “They are foundational to any meaningful recovery.”
When Cardoso assumed office, he said it was clear to him that the CBN’s credibility had to be the bedrock of the actions he and his team would take.
He highlighted that floating the naira—despite facing significant public criticism—was a necessary step to bring the official exchange rate closer to the realities of the market.
According to Cardoso, the wide gap between the official and parallel market rates had encouraged arbitrage and speculation, severely eroding trust in the forex market.
“Credibility is earned by consistency,” Cardoso stated.
He explained that closing this gap, while difficult in the short term, was essential for sending a clear signal to market participants that the CBN is committed to transparency and sound monetary policy.
A Step Towards Restoring Market Stability
Since the introduction of EFEMS and other policy changes, Cardoso noted that speculative trading has significantly reduced, and stability is slowly returning to Nigeria’s foreign exchange markets.
“Speculative trading has been reduced, and stability is gradually returning to the currency markets,” he said.
The governor’s reforms are seen as bold and decisive moves aimed at fixing long-standing issues in Nigeria’s financial markets.
Battling Inflation: CBN’s Core Mission
While speaking about inflation, Cardoso made it clear that containing inflation remains the CBN’s primary focus.
Although the bank has not yet met its target, recent figures released by the National Bureau of Statistics (NBS) for July and August 2024 show that inflation rates are declining, signaling that the CBN is on the right path.
“Our decision to raise the Monetary Policy Rate (MPR) to 27.25% was a bold move,” Cardoso said.
Higher interest rates are often unpopular because they make borrowing more expensive for consumers and businesses.
However, Cardoso explained that raising rates was necessary to curb excess money in circulation and, in turn, control inflation.
“Leadership is about making hard choices to secure long-term stability over short-term comfort in moments like these,” he noted.
