The Real Impact of FX Reforms on Prices, Profits, and Purchasing Power
Nigeria’s foreign exchange landscape has changed dramatically over the past two years.
Under Governor Yemi Cardoso, the Central Bank of Nigeria has implemented comprehensive reforms. These changes are fundamentally reshaping how businesses operate, how investors view the market, and how ordinary Nigerians experience prices and purchasing power.
Understanding the real-world impact of these FX reforms is crucial for anyone doing business in or with Nigeria.
What is the foreign exchange market?
According to the Bank for International Settlements, the foreign exchange market is a global, decentralised marketplace where currencies are traded. It determines exchange rates for every currency and facilitates international trade and investment by enabling currency conversion.
The forex market is the world’s largest financial market, with daily trading volumes exceeding $9.6 trillion as of April 2025.
In simple terms, the forex market is where one currency is exchanged for another. Naira for dollars. Euros for pounds. This market operates 24 hours a day, five days a week, across major financial centres worldwide.
The reform journey: from crisis to stabilisation
Background: the pre-reform challenges.
Before 2024, Nigeria’s foreign exchange system had multiple exchange rates, limited transparency, and severe liquidity constraints. This fragmented system created arbitrage opportunities, encouraged rent seeking behaviour, and undermined investor confidence.
The naira traded at vastly different rates in official and parallel markets, sometimes with spreads exceeding 30%.
The 2024 to 2025 reform package.
Led by Governor Olayemi Cardoso, the CBN launched several key initiatives.
Exchange rate unification. The CBN moved toward a unified, market-determined exchange rate system, eliminating the multiple rate windows that had created distortions. By mid-2025, the gap between official and parallel market rates had narrowed to less than 5%, significantly reducing speculation.
Electronic Foreign Exchange Matching System (EFEMS). Launched in December 2024 after a two-week test run, EFEMS brought transparency and efficiency to FX trading. The system requires daily transaction reporting, mandatory trading hours from 9am to 4pm WAT, and a minimum trade value of $100,000.
Nigerian Foreign Exchange Code (FX Code). Officially approved in January 2025, the FX Code establishes comprehensive guidelines for ethical conduct, governance, and market discipline. It outlines six core principles. Ethics, governance, execution, information sharing, risk management, and confirmation and settlement.
Monetary policy tightening. The CBN raised the monetary policy rate from 18.75% at the start of 2024 to 22.75% by February 2024, maintaining a tight stance throughout the year to combat inflation and support the naira.
Reserves building and market interventions. External reserves increased to nearly 42billionbylate2024. The CBN implemented strategic interventions totalling 7.5 billion in early 2026 alone, demonstrating a commitment to market stability.
Source: Legit.ng. Naira Begins 2026 With Massive Gains as CBN Pumps $7.5 Billion Into FX Market. https://www.legit.ng
Impact on prices and inflation
The inflation reality.
Inflation reached 34.6% in November 2024, up from 29.90% at the start of the year. It then declined to 23.7% year on year by April 2025 according to the rebased Consumer Price Index released by the National Bureau of Statistics.
Source: National Bureau of Statistics. Consumer Price Index Report.
This inflation surge was driven by several factors directly related to the reforms.
Currency adjustment impact. The unification of exchange rates meant that the real cost of imports became fully reflected in domestic prices. Items previously accessed at preferential rates suddenly cost significantly more in naira terms.
Fuel subsidy removal. The elimination of fuel subsidies immediately increased transportation costs across the economy. This rippled through the supply chain, affecting prices of virtually all goods and services.
Transitional volatility. During the transition period throughout 2024, businesses faced uncertainty about future exchange rates. Some built larger margins into their pricing as a hedge against volatility.
The reforms have begun showing positive effects by 2025. Naira stabilisation and improvements in food production contributed to the significant decline in inflation from over 31% average in 2024 to 23.7% by April 2025.
The International Monetary Fund projects inflation will continue declining in the medium term with sustained tight macroeconomic policies and projected easing of retail fuel prices.
Market volatility has decreased dramatically. The average exchange rate in 2025 at ₦1,519.63 per dollar was slightly weaker than ₦1,486.03 recorded in 2024. But volatility fell from 4.58% to just 0.53%, according to Meristem Securities.
Source: Meristem Securities. Nigerian Foreign Exchange Market Analysis Report.
This reduction in volatility is crucial. It allows businesses to plan more effectively and reduces the risk premium built into prices.
Impact on business profits and operations
Winners and losers in the new FX regime.
Export oriented businesses are clear winners. Companies earning foreign currency have benefited significantly from fairer conversion rates. With the naira trading between ₦1,200 and ₦1,600 per dollar in 2025, exporters receive better naira returns for their foreign exchange earnings.
Formal remittance inflows rose 18% year over year to $21 billion in 2024, according to World Bank data.
Source: World Bank. Remittance Inflows to Nigeria Report.
Import-dependent businesses are under pressure. Businesses heavily reliant on imports have faced higher input costs, working capital strain, and margin compression. Imported raw materials and finished goods cost substantially more in naira terms.
However, these businesses now have clearer access to foreign exchange. Importers can access dollars more predictably through official channels, eliminating the uncertainty and delays that previously plagued the system.
The financial services sector has seen mixed outcomes. Banks have increased FX trading revenue from higher volumes and improved liquidity. But some clients struggling with naira depreciation have faced debt servicing challenges.
The Nigerian banking sector remains resilient, liquid, and profitable according to IMF assessments, having successfully navigated the transition period.
Strategic adaptations for survival.
Successful companies share common characteristics.
Currency matching. Businesses earning in dollars ensure their major costs are also dollar denominated where possible, or vice versa.
FX hedging. Companies are increasingly using forward contracts and other hedging instruments to lock in exchange rates for future transactions.
Pricing flexibility. Businesses that can adjust prices relatively quickly have been better positioned to maintain margins.
Efficiency improvements. The pressure of higher costs has driven many companies to streamline operations, reduce waste, and improve productivity.
Impact on purchasing power
The household perspective.
For ordinary Nigerians, the FX reforms have had profound effects on purchasing power.
Food costs have increased substantially. Imported food items became more expensive, while domestic food prices also rose due to higher fuel and transportation costs. Essential services like healthcare, education, and utilities have all seen price increases. Electronics, vehicles, and other imported consumer goods now cost much more in naira terms.
The IMF reports that poverty and food insecurity have risen during the transition period. An estimated 46% poverty rate in 2024 and 31 million Nigerians deemed food insecure.
Source: International Monetary Fund. IMF Staff Completes 2025 Article IV Mission with Nigeria. https://www.imf.org
Differential impact across income groups.
Low income households have been hit hardest. They spend a larger proportion of income on food and essential items, exactly the categories that have seen the steepest price increases.
Middle income households have experienced significant pressure. Families that previously enjoyed comfortable lifestyles have had to cut back on discretionary spending, postpone major purchases, and adjust expectations. However, those with skills enabling them to earn foreign exchange or work remotely for international companies have fared better.
High income households with diversified assets, including foreign currency holdings and investments, have been relatively insulated. Some have even benefited from increased asset values and investment returns in naira terms.
The silver linings.
Despite short term pain, the reforms offer potential long term benefits for purchasing power.
Greater predictability with exchange rates now market determined and more stable allows businesses to price more accurately, potentially reducing risk premiums built into consumer prices.
Improved supply chains through better access to foreign exchange have reduced the delays and uncertainty that previously disrupted supply chains.
The improved macroeconomic environment evidenced by Nigeria’s return to Eurobond markets, increased portfolio inflows, and real GDP growth accelerating to 3.4% in 2024 creates the foundation for future wage growth and improved living standards.
Investor sentiment and market performance
The return of confidence.
One of the most significant impacts has been the dramatic improvement in investor sentiment.
After years of capital flight, portfolio inflows returned forcefully in 2024, reaching $3.4 billion in Q1 2024 alone. That is a 61% increase from 2023 levels.
The Nigerian Stock Exchange reflected this optimism. Listed equity market capitalisation reached ₦40 trillion, approximately $27 billion, up 45% year on year.
Treasury bill yields remained above 20%, and real yields on naira bonds turned positive for the first time in five years. Yields on Nigeria’s 2031 Eurobond fell 80 basis points between Q3 2024 and Q1 2025, signalling renewed trust in macroeconomic stability.
Source: One Africa Market. Nigeria FX Reform 2024–2025: Unlocking Investor Confidence. https://www.oamarkets.com
The volatility caveat.
While the overall trajectory is positive, volatility remains a feature of the Nigerian market. The naira is expected to trade in a range of ₦1,200 to ₦1,600 per dollar in 2025, a significant band requiring active risk management.
Inflation, while declining, remains elevated at around 23.7%, still eroding returns for investments not properly hedged or structured.
The broader economic picture
GDP growth and sectoral performance.
Real GDP growth accelerated to 3.4% in 2024, driven mainly by increased hydrocarbon output and a vibrant services sector.
The IMF projects growth of 3.4% in 2025, supported by the new domestic refinery, higher oil production, and robust services.
The oil and gas sector benefited from better pricing transparency and improved access to foreign exchange for necessary imports. The Dangote refinery coming online represents a structural shift, potentially reducing Nigeria’s dependence on imported refined petroleum products.
Financial services, telecommunications, and other service sectors have thrived in the reformed environment, benefiting from improved investor confidence and better capital access.
Agriculture remained subdued, owing to security challenges and declining productivity. The sector has struggled with higher input costs like fertilisers and equipment while facing distribution challenges due to increased transportation costs.
Manufacturers have faced significant challenges due to higher imported input costs and energy expenses. However, the more stable FX environment and improved access to working capital through official channels represent potential turning points.
Fiscal and external balances.
Fiscal performance improved in 2024, with revenues benefiting from naira depreciation, enhanced revenue administration, and higher grants. These gains more than offset rising interest and overhead spending.
Nigeria’s balance of payments swung into surplus in 2024, reflecting improved foreign exchange management. Gross and net international reserves increased, with a strong current account surplus and improved portfolio inflows. By early 2026, reserves stood near $42 billion.
Looking ahead: challenges and opportunities
Remaining challenges.
Persistent inflation at 23.7% remains uncomfortably high, continuing to erode purchasing power. The projected decline to 15% by end of 2025 and 12.94% in 2026 remains ambitious.
Poverty and food insecurity have risen during the transition period. Without adequate social safety nets and targeted interventions, these trends could undermine political support for continued reforms.
Security deterioration in parts of the country impacts agricultural production and overall economic activity. The IMF identifies security deterioration as a key downside risk.
Nigeria remains exposed to oil price volatility and global financial conditions. A significant decline in oil prices could adversely affect growth, fiscal and external positions.
Sustaining reform momentum requires continued political will and policy consistency. Any backsliding could quickly reverse confidence gains.
Opportunities on the horizon.
The Dangote refinery and other domestic refining capacity coming online could fundamentally alter Nigeria’s FX dynamics, reducing the need for petroleum product imports historically a major source of FX demand.
The reforms create incentives for economic diversification away from oil dependence. Services, technology, and agriculture all have potential for growth in the more transparent FX regime.
Nigeria’s improved macroeconomic stability positions it to take greater advantage of the African Continental Free Trade Area, potentially boosting non-oil exports.
Improved investor confidence could catalyse much needed infrastructure investment, addressing longstanding constraints to growth.
Nigeria’s vibrant technology sector, already attracting significant investment, could benefit from the more predictable FX environment.
Practical recommendations
For businesses. Embrace FX risk management using forward contracts, natural hedges, and diversification of currency exposures. Strengthen financial governance with real time visibility into FX exposures. Build strategic reserves with adequate working capital buffers and foreign currency reserves. Pursue operational excellence using higher costs as a catalyst for efficiency improvements. Explore export opportunities to incorporate foreign exchange earnings into your business model.
For investors. Take a long term view. Short term volatility will persist, but the fundamentals are improving. Diversify across sectors between exporters and import dependent businesses showing strong adaptation. Monitor policy consistency for any signs of backsliding on reforms. Engage local expertise to navigate market complexities. Consider hedging strategies to manage FX exposure.
For policymakers. Strengthen social safety nets to cushion short term social costs of reforms. Maintain reform momentum while being flexible in implementation timelines. Enhance communication about reform benefits and timelines. Address security challenges, particularly in agricultural areas. Continue building reserves to provide buffers against external shocks.
Where to start tomorrow
Do not try to predict exchange rates. No one can.
Start with exposure mapping. Where are your currency mismatches? Revenues and costs in different currencies?
Implement hedging. Forward contracts. Natural hedges. Diversification.
Build reserves. Hold foreign currency balances. Maintain working capital buffers.
Focus on efficiency. Higher input costs are not going away. Optimise operations.
Monitor policy. Stay alert to CBN announcements. Track reserve levels. Watch inflation trends.
Final word
Nigeria’s foreign exchange reforms represent a historic turning point.
The transition from a controlled, multi rate system to a unified, market determined regime has been painful. Prices have risen sharply. Purchasing power has been eroded.
But the foundation for sustainable growth is now in place.
The data tells a story of a country in transition. Inflation peaked at 34.6% but has begun declining to 23.7%. Exchange rate volatility dropped from 4.58% to 0.53%. Investor confidence has returned, with portfolio inflows surging 61% and the naira posting its first annual gain in 13 years. External reserves have strengthened to $42 billion. GDP growth has accelerated to 3.4%.
For businesses, the reformed FX market replaces unpredictability with transparency. Those that adapt will thrive. Those that do not will struggle.
For investors, Nigeria is once again a high return, high risk frontier market worth serious consideration.
For ordinary Nigerians, the reforms have imposed real hardship. But a stable, transparent FX system is essential for long term prosperity.
There is no going back to the old system. Nigeria must move forward.
CALL TO ACTION
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REFERENCES
Bank for International Settlements. Triennial Central Bank Survey of Foreign Exchange and Over-the-counter (OTC) Derivatives Markets. https://www.bis.org
Central Bank of Nigeria. Monetary Policy Decisions and Foreign Exchange Market Reforms.
Ecofin Agency. Nigeria’s Naira Posts First Annual Gain in 13 Years as Reforms Stabilize FX Market. https://www.ecofinagency.com
Independent Newspaper Nigeria. Naira Regains Stability in 2025 as CBN Reforms, Foreign Inflows Calm FX Market. https://independent.ng
International Monetary Fund. IMF Country Report No. 25/157: Nigeria – Article IV Consultation. https://www.imf.org
International Monetary Fund. IMF Staff Completes 2025 Article IV Mission with Nigeria. https://www.imf.org
Legit.ng. Naira Begins 2026 With Massive Gains as CBN Pumps $7.5 Billion Into FX Market. https://www.legit.ng
Meristem Securities. Nigerian Foreign Exchange Market Analysis Report.
Mondaq. An Overview of the Regulatory Changes in the Nigerian Banking & Finance Sector in 2024 and Outlook for 2025. https://www.mondaq.com
National Bureau of Statistics. Consumer Price Index Report.
One Africa Market. Nigeria FX Reform 2024–2025: Unlocking Investor Confidence. https://www.oamarkets.com
World Bank. Remittance Inflows to Nigeria Report.
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