In a remarkable turnaround for the foreign exchange market, the Central Bank of Nigeria’s (CBN) bold reforms have triggered a surge in foreign currency inflows, pushing total FX inflows to a record $112 billion in 2025. This development, analysts say, is a direct outcome of restored investor confidence following the clearance of over $7 billion in long-standing FX backlogs and the unification of exchange rates.

The reforms, initiated under CBN Governor Olayemi Cardoso shortly after he assumed office in October 2023, have fundamentally reshaped the nation’s approach to forex management. By prioritising credibility, transparency, and market-driven policies, the apex bank has not only cleared a crippling backlog but also attracted significant autonomous inflows from diaspora remittances, foreign portfolio investments, and non-oil exports.

Market watchers describe this as a watershed moment. Nearly three years after the backlog clearance, the economy is witnessing a steady accretion of foreign reserves and a more stable exchange rate environment, signalling renewed global appetite for Nigerian assets.

Cardoso’s pledge: restoring credibility

At the heart of this success story is the CBN’s unwavering commitment to honouring its obligations. In a candid reflection, Governor Cardoso revealed the high-stakes decision-making behind the clearance of the $7 billion FX backlog.

“Credibility is at the heart of any central bank,” Cardoso said. “If you don’t have credibility, people do not trust you and they do not invest in your economy. When I took office, I made a promise we would pay the verifiable backlog of monies that were owed by Nigeria to third parties. It was estimated at over $7 billion. To be honest, I had no idea how I was going to do it, but I just felt it was not something to be negotiated.”

The Governor emphasised that maintaining national integrity was non-negotiable.

The CBN immediately commissioned a forensic audit to verify the claims. Following the audit’s recommendations, the apex bank settled the obligations, despite the significant financial sacrifice involved.

“As a going concern, the CBN knows that if it expects people to continue to trust and invest in our economy, you’ve got to keep your promises,” Cardoso added.

This decisive action marked the beginning of a broader reform agenda aimed at dismantling the multiple exchange rate regime that had plagued the economy for years. The old system created massive arbitrage opportunities, discouraged legitimate investment, and drained external reserves, which had plummeted to $33.22 billion by December 2023.

Market modernisation

One of the most impactful reforms was the unification of the exchange rates. By collapsing the multiple windows into a single, market-reflective rate, the CBN eliminated distortions that previously allowed round-tripping and speculative practices. This move restored transparency and gave businesses the predictability they needed to plan long-term investments.

Complementing the unification was the introduction of an electronic FX matching system — a technology already proven effective in other emerging markets. This platform has enhanced price discovery, reduced human intervention, and minimised opportunities for manipulation.

The apex bank also implemented tighter monetary policies to combat inflation, while gradually reducing its direct intervention in the forex market. These measures, combined with fiscal authorities’ efforts to remove fuel subsidies and end deficit monetisation, created a more coherent policy environment.

The results have been tangible. According to the Financial Markets Dealers Association (FMDA), total FX inflows reached $112 billion in 2025. Autonomous sources — those outside the CBN’s direct control — accounted for a dominant 64.94 percent of the inflows, underscoring the private sector’s growing role in driving forex supply.

Autonomous inflows jumped to $72.91 billion in 2025, up from $59.29 billion in 2024 and $41.80 billion in 2023. This near-doubling in just two years reflects increased confidence from both local and international investors.

Meanwhile, the CBN’s own FX sales rose sharply by 126.37% to $8.94 billion in 2025 from $3.95 billion the previous year. However, analysts note that the CBN is increasingly playing a stabilising rather than dominant role as autonomous supply grows stronger.

Shifting patterns in FX utilisation

On the demand side, total FX utilisation stood at $47.17 billion in 2025. A notable shift occurred in the composition of demand. Available data show that invisible-related transactions — which include services, financial flows, and cross-border payments — surged dramatically to $27.27 billion from $11.10 billion in 2024. Financial services alone accounted for $21.22 billion of this amount.

Import-related demand rose more modestly from $15.54 billion to $19.90 billion, with the industrial sector remaining the largest user at $8.43 billion. Oil sector FX demand nearly doubled to $4.98 billion, while business services demand increased significantly.

These patterns indicate that Nigeria’s economy is becoming more services-oriented and globally integrated, with increased activities in aviation, shipping, technology, and financial services reflecting renewed investor participation.

Reforms and global rating agencies

International rating agencies have responded positively to the reforms. Fitch Ratings revised Nigeria’s long-term foreign-currency issuer default rating outlook from negative to stable. The agency praised the exchange rate unification, the introduction of the electronic FX matching platform, the new FX code, and monetary tightening measures.

“These have improved policy coherence and credibility and reduced economic distortions and near-term risks to macroeconomic stability,” Fitch stated.

S&P Global Ratings revised its outlook on Nigeria to “positive” from “stable” while affirming the “B-/B” rating. “The monetary, economic, and fiscal reforms being implemented by Nigerian authorities will yield positive benefits over the medium term,” S&P noted.

Moody’s also upgraded Nigeria’s rating by one notch to “B3” from “Caa1” citing improvements in external and fiscal positions.

These upgrades are significant. They signal lower perceived risk, potentially opening doors to cheaper borrowing on international markets and attracting more foreign direct investment.

Stakeholders’ perspectives

Dr. Muda Yusuf, Convener of the Centre for the Promotion of Private Enterprise (CPPE), described the inflows as a clear validation of the reforms.

“The autonomous inflows are driven by the reform, remittances from the diaspora, inflows from foreign portfolio investors, non-oil export proceeds; all manner of things outside the traditional sources of our forex. This reflects the fact that the reform has positioned the economy to attract those inflows,” he said.

Yusuf noted that the increase in CBN FX sales should be viewed in context. “A lot of inflows are coming in. Those are not CBN funds. The bigger factor is the supply side — the fact that autonomous inflows have increased significantly.”

On the rise in invisible transactions, Yusuf explained that many reflect genuine economic activities. “When airlines come to Nigeria, when shipping companies operate here, when expatriates come into oil and gas and tech — all of these services have to be paid for in foreign currency. There is a lot of international transaction going on now because of the confidence the reform has restored.”

Mr. Charles Fakrogha, CEO of ECL Asset Management, linked the FX market recovery to broader capital market signals.

“The kind of activity we are seeing from the FX market shows there are a lot of activities in terms of imports and exports,” he said. However, he expressed concern over the dominance of financial services in FX demand. “The real sector is not being carried along… These are the structural imbalances in the economy that we are seeing.” Fakrogha credited exchange rate unification as fundamental. “The unification has closed the gap for unnecessary speculation. If not for that unification, the dollar-naira rate would have gone beyond what we are seeing.”

Mr. Aruna Kebira, CEO of Globalview Capital, highlighted the role of financial sector recapitalisation. “There is no direct investor that would not like to do business with a well-capitalised stockbroking firm. All the banks are recapitalised. Things have actually opened up.”

Kebira pointed to the Nigerian Stock Exchange’s impressive rally from 58,000 to 250,000 points as evidence of growing diaspora confidence. “Nigerians in the diaspora now have serious confidence in the Nigerian stock market. Money is coming in.”

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