It is a right step in the right direction. The swap agreement will reduce the strain on Nigeria’s foreign reserves denominated in dollars. The deal is set to take an important place in global trade, boost mutually beneficial business transactions between the two countries and other Asian countries interested in investing in Nigeria.
The deal will help to eliminate the challenges associated with having to use a third currency. It is not like the CBN will start providing cash to businesses, but there will be something like a book keeping arrangement in which the CBN will keep a record of the Yuan (Chinese currency) requests of Nigerians. Another advantage of the deal is that it will further improve our foreign exchange reserves because with the opportunity to access Yuan directly from the CBN there will be less demand for dollars. This deal could face challenges with regard to clarity about the exchange rate that will be used for transactions and the risk that it could further put China at an advantage over Nigeria in terms of trade between both countries.
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 the area of information technology, not to mention other benefits yet to be unveiled by the two countries. Furthermore, the deal will help in smoothening the bilateral trade relationship between Nigeria and China, as China is believed to be Nigeria’s largest trading ally. And more importantly is that, China’s acceptance to swap its currency with Nigeria’s Naira is an expression of confidence in the Nigerian economy, which is a good signal that Nigeria is back in business.
I feel besides the facilitation of trade and bilateral relationship; the agreement would not make significant impact. I don’t think it makes great difference because the whole arrangement is still denominated in dollar and it is more like buying crude oil and paying through Nigeria’s imports.The currency swap will only be useful for importation by the two countries and only items accepted by CBN will be imported. It is a good deal though.
The problem is not with the logic of the deal but the practicality of it. I am not confident that we are well equipped to manage what China does with the Naira over there. Some countries far better equipped than us do complain about the Chinese manipulating currency. Again I do not blame China for this idea, they want to be in as much control as they possibly can and make the maximum profits possible. The deal may well benefit a handful of Nigerian businesses that trade with China. However, due to the incompetence and weaknesses of the Nigerian economic institutions, and their inability for oversight, this will ultimately hurt the overall economy and strength of the Naira.
This swap deal between Nigeria and China got me excited and expectant because Nigeria is a huge retail trade market.Most of our people are traders who sell goods from China. But to buy, they have to go through the US. That is, to buy from the Chinese, they must first convert their money to dollars, then convert to Yuan which is the currency they use in that country. This automatically gives rise to two very critical problems; the cost of the product becomes higher due to the cost of buying dollar first, then buying Yuan; the price of the dollar will skyrocket as many people need the dollar and due to the dollar trade restrictions, time and money is wasted purchasing the dollar. The currency swap deal will reduce the demand for the dollar which will lead to a fall in price, thus making it available and affordable for businesses that need the dollar.At the current exchange rate, Nigerian businesses will be saving about N73 for every N360 which is at $1 official exchange rate spent. Now, imagine how much businesses will save and how much it will reduce prices of commodities in the market, which will result in more disposable income for individuals.
I believe that the naira to Yuan swap agreement should reduce the pressure on the naira if properly implemented.Nigerian businesses don’t need to use dollar to pay anymore because it’s going to be costlier. Nigerians going to China for business will pay with Yuan and by so doing, we avoid every form of round tripping. I will urge Buhari’s team to see how the country can indeed leverage on the technological prowess of China for Nigeria to attain a sustainable economy.
The demand for dollar through banks will definitely reduce, as all transactions between Nigeria and China will be in Yuan instead of dollar. Also, oil sales from Nigeria to China would be settled in Chinese currency and the access to the currency would be easier. The swap will eliminate challenges arising from transactions with the dollar and promote business flexibility between Nigeria and China.
I see the currency swap deal as a positive move towards enhancing the value of the naira, thereby improving access to cheaper foreign exchange, in favour of members of the business community. The deal will strengthen the naira in the foreign exchange market, as the nation would have to enhance its productive base to achieve that.
The currency swap deal is a good one. It will facilitate bilateral trade and investment as well as promote financial stability and broader economic cooperation between the two countries. I feel it will help Nigeria to position itself as a trading hub with China in the West African sub-region. Chinese firms looking to do business with Nigeria will be supplied avenues to do so by virtue of this deal.In addition, Nigerian importerswill feel less pressured to source US dollars to import goods from China. It will also improve CBN’s management of the country’s FX reserves.
The currency swap deal was unnecessary because it would ensure that majority of the country’s foreign trade deals are channelled to the Chinese economy. Nigeria will become economically dependent on China even though we are a sovereign nation. The policy will lead to the influx of Chinese goods into our country considering that we are contending with weak regulation.
The only benefit of the currency swap deal for Nigeria was that in the short run, it would address third party sourcing of the Chinese currency by Nigerian importers.However, it will take the trade deals with the Chinese to a new height and reduce the pressures of our foreign reserves. The initiative would allow the Chinese to compete with our local businesses, thereby impeding the growth of indigenous firms.
If this deal is not utilised for what is meant for, things might go awry unless the government is alive to its responsibilities. I feel the Federal government should sound a note of caution as well as beam its searchlight on the activities of the regulatory agencies such as NAFDAC, Standard Organisation of Nigeria (SON) and Customs to ensure that they collaborate with the Central Bank of Nigeria so that the policy will not bring about any negative effects to our economy.This policy can trigger high volumes of import into this country which is good. With it can also come unrestricted imports, especially the influx of substandard goods into the country. These agencies with the help of the government should mount serious surveillance to ensure that substandard goods do not take over our domestic market.More importantly, our local industries must not surrender or succumb to the whims and caprices of importation. That is to say we’re not going to slaughter our local industries on the altar of unrestricted importation from China courtesy of the currency swap. Customs and other agencies at our borders must ensure the products coming into this country meet international standards.
The deal is in line with the Federal government’s desire to attract foreign investment and this will definitely boost our economy. My fear however is that China might benefit more from the deal than Nigeria. I know the government would have known the benefits accruing to Nigeria before signing the deal; I hope it works well for us.If we want the deal to positively impact the nation’s economy, Nigeria has to insist that Chinese exports to the country under the agreement should consist mainly of products that are critical to the nation’s manufacturing sector. This means that whoever is importing goods from China into the country under the arrangement is only bringing in things that are critical to our economy.If not the deal will only boost Chinese exports to Nigeria’s detriment.
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