Any fears about Nigeria-China currency swap?

Recently Nigeria and China signed a bilateral agreement to operate a three-year currency-swap deal. The development is aimed at facilitating enhanced trade between both countries, given the fact that China is Nigeria’s biggest trading partner.

The pact was the result of over two years of negotiations and is aimed at providing adequate local currency liquidity for Nigerian and Chinese industrialists and other businesses to reduce their difficulties in the search for a third currency.

With the deal, Nigeria became the fourth country in Africa (after Ghana, South Africa and Zimbabwe) to sign on to Yuan for its trading and financial market transactions.

The deal could not have come at a better time than now with the country’s exit from recession, impressive Foreign Direct Investment (FDI) through the establishment of the Importers and Exporters (I&E) window, resulting in steady reserves accretion.

A currency swap is a process whereby two countries elect to denominate aspects of their mutual trade on a direct exchange between their respective national currencies, instead of a third-party value standard that is extraneous to them, which in the present global system is the US dollar.

Under the currency swap arrangement, trade between Nigeria and China will be denominated in a direct exchange between the Naira and China’s currency, the Rheminbi.

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Though divergent views have greeted the deal, and irrespective of the supposed trade imbalance in favour of China, mixed reactions have flowed freely with commendation of the initiative dominating. The major questions on every analyst and even an average Nigerians’ minds are whether the currency swap is a good idea for the nation’s economy right now, does it bring any significant benefits? What are the aftermaths of the swap? Will Nigeria turn to dumping ground for Chinese goods?

Experts and analysts both home and abroad have chorused that the development will lead to the reduction in the strain on Nigeria’s foreign reserves denominated in dollars, as it is set to take an important place in global trade and boost mutually beneficial business transactions between the two countries and Asian countries interested in trading or investing in Nigeria.

The agreement will assist the two countries in managing their reserves, especially Nigeria, by reducing the exposure of foreign reserves to the volatility risk of a single currency, the dollar. Nigeria will gain from the technical know-how and ingenuity of the Chinese in information technology, not to mention other benefits yet to be unveiled by the two countries.

Furthermore, the deal will help to smoothen the bilateral trade relationship between Nigeria and China, as China is believed to be Nigeria’s largest trading ally. More important and most crucial is China’s acceptance to swap its currency with Nigeria’s Naira, an expression of confidence in the Nigerian economy, which is a good signal that Nigeria is back in business.

Against this backdrop, the government’s agencies and, indeed, the Nigeria Customs Service, should rise up to its billing in order to guard the nation against unbridled influx of goods.

Rahma Oladosu,

Abuja

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