Lagos – A major development in the money market last week was the signing of yuan swap agreement between the Central Bank of Nigeria (CBN) and the Industrial and Commercial Bank of China (ICBC).
The CBN said it planned to diversify the foreign exchange reserve base by ensuring that more percentage would be in yuan following the Beijing’s drive to internationalise its currency.
The News Agency of Nigeria (NAN) reports that less than 10 per cent of Nigeria’s reserves has been in yuan since about five years ago.
China also has currency swap deals with some countries like Kazakhstan, Argentina and New Zealand.
The Lagos Chamber of Commerce and Industry (LCCI) commended the Federal Government for signing the agreement with China.
Mr Muda Yusuf, the Director-General of LCCI, said the development was good for the economy because it would diversify the nation’s foreign exchange reserve base.
Yusuf said that yuan was a strong and stable currency backed by a strong economy with which the Nigeria could conduct more international trade.
“The Chinese economy is the second largest economy in the world; there is a relationship between the size of an economy and the strength or quality of its currency.
“This move will greatly improve the fortunes of Nigeria’s economy in view of the rising profile of her trade relations with China,” he said?
Mr Kyari Bukar, the Chairman of Nigerian Economic Summit Group (NESG), also commended the government’s initiative.
Bukar advised government to expand the swap agreement beyond China to other Asian countries like India, UAE and others.
According to him, the government can also sign such agreement with nations that have healthy trade relationship with the country.
“We shouldn’t stop with China; we should reach out to India.
“Look at Dubai as well; we have a lot of Nigerians importing from the Dubai,” Bukar said.
Due to the current foreign scarcity, the CBN has pegged the naira at N199.50 to the dollar since last year.
The naira is being exchanged at N320 to the dollar at the parallel market, therefore, making imports to be costly.
The naira is currently N30.76 to the yuan.
With the agreement, yuan will be easily available in Nigerian banks to facilitate transactions between Nigerian and Chinese companies.
A financial expert, who preferred anonymity, said the agreement would help to reduce the demand for dollar in Nigeria
He said that once this was achieved, Nigerian businessmen would transact businesses easily In China.
The trade volume between Nigeria and China is on the rise. The trade volume was 14.9 billion dollars in 2015 from 2.8 billion dollars in 2005, although it is in favour of China.
In 2015, Nigeria accounted for 8.3 per cent of total trade between China and Africa and 42 per cent of the total trade between China and the Economic Community of West African States (ECOWAS).
Prof Sheriffdeen Tella of the Department of Economics, Olabisi Onabanjo University, Ago-Iwoye, said that there was nothing wrong in diversifying the nation’s sources of foreign exchange.
Tella said that the currency swap deal with China would allow transactions in international trade to be more flexible.
According to him, if the nation’s reserve is in different foreign currencies, it will facilitate business transactions.
The economist, however, advised that for seamless deals, the country should do all it could to shore up its reserves.
He said that the country’s current trade with China was weak, adding that the government should ensure it negotiated with China to buy more of its crude.
“If we are able to sell more of our crude oil to China, then the deal will make more sense to us.
“The more reserve we have in yuan, the better for our economy,’’ Tella said.
Dr Evans Osabouhien of the Department of Economics and Development Studies, Covenant University, Ota, however, advised that the country should be careful in adopting policies with radical shift.
Osabouhien said that the currency swap deal was not the solution to the nation’s current economic challenges.
“I don’t think that the currency swap deal should be our focus now,’’ Osabouhien said.
The don said that the country should rather focus on increasing its productive capacity in order to earn more foreign exchange.
Prof Isaac Albert, Director, Institute for Peace and Conflict Studies, University of Ibadan, said that the currency swap deal had shown that the nation’s president was a good student of history.
Albert explained that the nation’s economy was in shambles in the aftermath of the 1980s intervention by the International Monetary Fund (IMF) that introduced the Structural Adjustment Programme (SAP).
He said that the agreement with China would tactically reduce the dominance of dollar in business transactions with both countries.
Albert, who is also the Board Chairman, West African Network for Peace Building, said that the agreement would reduce the pressure on the naira.
“I think this is one of the best things that will happen to our economy,’’ Albert said.
He said that more African nations were looking towards relationship with China to boost their economy.
Dr Phillip Ujomu of the Department of Philosophy and Religious Studies, Federal University, Wukari, Taraba, said that the deal with China was important for the nation’s political economy.
The don said that the yuan would help the country to be free from the tyranny of the dollar.
“China is the way to go for now because they produce so much. It does not meddle with the political affairs of the countries it is relating with,’’ Ujomu said.
