Building Liquid FX Markets in Africa

Across much of Africa, foreign exchange markets remain shallow, fragmented, and prone to episodes of acute illiquidity. For investors, corporates, and policymakers alike, this translates into wider spreads, unpredictable pricing, and a persistent risk premium that makes local currency assets harder to hold and harder to trade. Improving this picture is less about any single policy lever and more about the deliberate construction of market infrastructure over time.

Why liquidity is scarce

Three structural issues recur across the markets we work in. First, interbank trading is often thin because a small number of banks intermediate the bulk of flow, leaving little incentive to quote continuously. Second, price discovery is weakened by limited transparency around executed trades, so participants price in uncertainty rather than observed levels. Third, corporate and institutional demand is frequently lumpy and concentrated around known settlement dates, which produces predictable liquidity air-pockets rather than smooth two-way flow.

None of these issues are unique to Africa, but they tend to compound in markets where the supporting infrastructure — code of conduct standards, electronic trading venues, and consistent central bank market operations — is still maturing.

What actually helps

The interventions that tend to work share a common thread: they reduce uncertainty for market makers rather than trying to force liquidity into existence. Clear and consistently applied intervention frameworks give banks confidence to hold and quote positions. Interbank code of conduct standards, even informally agreed, raise the floor on trading behaviour and encourage two-way quoting. And post-trade transparency — even simple end-of-day volume and rate reporting — narrows the gap between informed and uninformed participants.

Money market development matters just as much as FX-specific reform. A functioning short-term interbank market gives banks a place to fund and offload currency positions, which in turn supports tighter FX pricing. Markets that treat FX and money market development as separate workstreams tend to see slower progress on both.

Sequencing the reform agenda

We generally advise starting with diagnostics: a structured review of who trades, how often, at what size, and under what constraints. This produces a shared, evidence-based view of where the market actually breaks down, which is a far better starting point than importing a reform template from another jurisdiction. From there, the sequencing usually runs from market conduct standards, to transparency measures, to more structural changes such as primary dealer frameworks or electronic trading infrastructure.

Liquidity is built, not legislated. It takes consistent, sequenced work across market conduct, transparency, and infrastructure — sustained over multiple years — before deeper, more resilient FX markets take hold. That is the work we do alongside central banks, regulators, and market participants across the continent.