World Economy

China-Nigeria Yuan Swap to Boost Naira

China-Nigeria Yuan Swap to Boost NairaChina-Nigeria Yuan Swap to Boost Naira

The currency swap deal between Nigeria and China will reduce the pressure on the naira, which is caused by the huge demand for dollars, finance analysts have said.

Analysts also say that those who had kept dollars for the purpose of speculative trading would be badly hit as a result of the deal with China, Punch reported.

The analysts hinged their opinion on the fact that since a majority of the imported items into Nigeria were from China, many importers would reduce their demand for dollars thus, helping to moderate the dollar-naira exchange rate.

It is said that the currency swap agreement is one of the outcomes of the visit by President Muhammadu Buhari to China, and the pact will allow Nigerian businesses, which import mainly from the Asian country, to conclude their transactions in the Chinese currency instead of the dollar.

The new agreement will see the Nigeria-China trade, which accounts for over 70% of imports into Nigeria, done in yuan.

Over 90% of international trade between Nigeria and the world are done in dollars, putting much pressure on the naira.

The Head of the Department of Banking and Finance at the Nasarawa State University, Uche Uwaleke, told Punch that one of the benefits of the currency swap deal was to reduce the level of exchange rate risk being suffered by importers.

Beneficial Deals

He, however, said with the development, there was a need for the Central Bank of Nigeria to increase the portion of the country’s foreign exchange reserves held in the Chinese currency to enable it to finance up to three months of imports.

He argued that if the swap deal was not beneficial to the economy, most countries that had entered into the arrangement in the past would not have renewed such pacts.

When asked if the CBN had enough yuan reserves to finance the imports from China, he said, “The CBN had in 2011 introduced yuan into our basket of currencies. The yuan is about 10% of our reserves and so, the quantum of the yuan we have there, cannot finance one month of import from China. But the total reserves that we have, about $27 billion, can only finance four months of imports, and so, we need more yuan.”

The naira got stronger, from 322 to 317, last Wednesday following the expected Nigeria-China yuan swap announced by the Central Bank of Nigeria.