Naira Appreciation: Is Recovery Process By CBN Sustainable?

The naira has recently experienced a remarkable recovery in value against the US dollar. Just a few days ago, the naira was trading at an all-time low of N1700 to $1 on the black market. However, in less than 48 hours, it rebounded to around N1500, causing many Nigerians to wonder, “What changed so suddenly?”

The unexpected appreciation of the naira has sparked intense public interest and debate. While some see it as a sign of hope, others remain skeptical about how long it will last. To understand this sudden shift, it’s crucial to explore the key factors driving the change.

According to a report by Prime Business Africa, four major developments are at play. These include Nigeria’s successful Eurobond issuance, the Central Bank of Nigeria’s (CBN) introduction of a new electronic forex trading system, the influx of dollars from Nigerians abroad returning home for the holiday season, and the influence of crypto traders converting their dollars to naira for local spending. These factors have significantly increased the supply of dollars in Nigeria, leading to a positive shift in the value of the naira.

But while many Nigerians celebrate this development, there are lingering concerns. Is this change real, and more importantly, is it sustainable? Primebusiness.africa spoke with three financial experts to provide deeper insight into the situation.

Eurobond Inflow: A Double-Edged Sword?

One of the major reasons for naira’s recent appreciation is Nigeria’s success in raising a $2.2 billion Eurobond. Initially, the country aimed to secure only $1.5 billion, but the offer was oversubscribed as global investors scrambled to invest, eventually offering $9 billion. This inflow of dollars gave Nigeria a stronger position in terms of foreign reserves.

Speaking on the impact of the Eurobond, financial analyst and economist, Dr. Michael Adebayo, explained, “When Nigeria raised that Eurobond, it increased the amount of dollars flowing into the economy. It’s a simple case of supply and demand. More dollars in the system mean that people can access it at a better rate, and that’s why the Naira appreciated. But we must remember that this is a loan. The $2.2 billion will have to be paid back with interest, so it’s not a permanent solution.”

His comment reflects the caution many experts have about this move. While the short-term effect is positive, the long-term cost could burden Nigeria with more debt. Dr. Adebayo emphasised that unless Nigeria finds a way to boost exports and earn foreign currency, the Naira’s strength will remain fragile.

CBN’s New Forex Trading System: A Game-Changer?

Another major development is the Central Bank of Nigeria’s introduction of an Electronic Foreign Exchange Matching System (EFEMS), effective from December. This system transfers Nigeria’s forex trading operations to Bloomberg and BMatch platforms. The goal is to ensure greater transparency, operational efficiency, and fair pricing.

Explaining the process, financial consultant, Mrs. Tolu Adeyemi, said, “The EFEMS system is revolutionary because it opens up forex trading to a transparent, real-time matching process. It allows banks, businesses, and individuals to see who is buying and selling at any given time. Before now, people would hoard dollars and control the market, but now, everyone can see everything. It has forced banks and individuals with excess dollars to release them.”

Mrs. Adeyemi highlighted that this system reduces the power of market manipulators and improves the availability of dollars in the market. She noted that Kenya had already adopted a similar system, and Nigeria is following suit. The transparency and efficiency of this system create a level playing field for buyers and sellers, ultimately helping the Naira recover.

However, Mrs. Adeyemi also raised a cautionary note. “This is a significant step forward, but it depends on whether the CBN stays committed to the system. If there’s political interference or if old practices of manipulation return, it will be difficult to sustain the gains of the Naira,” she stated.

Dollar Inflow from Nigerians Abroad: A Seasonal Boost?

The third major factor driving the naira’s appreciation is the influx of Nigerians living abroad returning home for the December holidays. This annual migration of Nigerians, often referred to as “I Just Got Back” (IJGB) visitors, brings a flood of foreign currency into the country. These returnees bring cash, especially dollars, to fund their holiday expenses, including travel, shopping, and family gifts.

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According to currency trader, Mr. Yusuf Bello, “Every December, we see an increase in dollar inflow. People coming home for the holidays bring in a lot of cash, especially dollars. They use it for spending and other expenses. This time, fintech companies and local currency traders have more dollars than usual, and that has forced the rates to drop.”

He added that the influx is temporary and seasonal, and by January, the demand for dollars will likely rise again as Nigerians who traveled abroad return and local traders seek foreign currency for imports. Mr. Bello suggested that while this development has helped the Naira now, it is not a long-term solution to Nigeria’s forex challenges.

Crypto Traders Converting Dollars to Naira

Another critical factor in the naira’s recovery is the role of cryptocurrency traders. December is often a period of heavy spending for crypto investors, as many use their profits to meet end-of-year expenses. This year, many Nigerian crypto traders are converting their dollars into Naira to cover holiday expenses, thereby adding to the flow of dollars in the local market.

On this development, Dr. Adebayo, explained, “Many people think the crypto market is separate from the real economy, but it isn’t. Nigerian crypto traders are cashing out their dollars in December to pay for weddings, vacations, and other holiday-related expenses. As a result, you have more dollars being exchanged for Naira, adding to the increased supply of dollars in the system.”

He stressed that this trend is temporary. “Crypto traders won’t keep converting dollars every month. It happens in December because of the holiday season. Once the new year begins, demand for dollars will return, and the naira may weaken again.”

Is The Recovery Sustainable?

With these four factors driving the naira’s recovery, it’s essential to ask if this appreciation is sustainable. Each factor appears temporary — the Eurobond is a loan that must be repaid, the EFEMS system requires continuous transparency, the IJGB influx is seasonal, and crypto conversions are linked to holiday spending.

Dr. Michael Adebayo believes the CBN deserves credit for taking bold action, but he warned of over-optimism. “Look, the CBN has done well to restore confidence in the naira with its EFEMS system. However, let’s not forget that these are short-term fixes. If Nigeria isn’t exporting enough to increase dollar inflow, the naira will eventually slide back. We can’t keep borrowing dollars and expect the Naira to remain strong,” he said.

Mrs. Tolu Adeyemi echoed this view. She believes the EFEMS system is a good step but questioned whether Nigeria’s economy can generate the forex supply it needs to keep the system functional. “If we depend on borrowed dollars and seasonal inflows, the naira will face the same pressure again in a few months. What we need is for Nigeria to produce and export more, not rely on temporary boosts,” she stated.

The naira’s recent rise from N1700 to N1500 has brought hope, but experts warn that it may not last. The factors driving the change — the Eurobond, the EFEMS system, seasonal holiday inflows, and crypto trader conversions — are temporary. Without sustained forex inflows from exports and long-term production, Nigeria risks falling back into a cycle of currency devaluation.

For now, Nigerians can enjoy the brief relief, but as Dr. Michael Adebayo rightly pointed out, “Borrowing dollars is not the same as earning them.” While the CBN’s new system may have brought transparency and efficiency to the forex market, it remains to be seen if Nigeria can sustain this progress.

The road ahead is uncertain, and the only sustainable path is for Nigeria to increase its export capacity and reduce its reliance on borrowing. For now, Nigerians wait, watch, and hope that the magic recovery of the naira is more than just an illusion.