With the Naira exchanging for as high as N330 to the dollar in the parallel market, the nation’s currency, no doubt, has hit an all-time low. As a way of finding solutions to the current currency slump, the Industrial and Commercial Bank of China Ltd (ICBC) and Nigeria’s Central Bank have signed a deal on Yuan transactions.
In recent times many Nigerians have found it exceedingly difficult to pay for services like education and healthcare in other countries, due to the weak Naira, and this deal is an attempt to resuscitate the currency.
The deal means that the Chinese Yuan will flow freely around Nigerian banks and will even be included in the country’s foreign exchange reserves. This deal is one of the outcomes of the meetings between Presidents Muhammadu Buhari of Nigeria and Xi Jinping of China, during the Nigeria-China Business/Investment Forum in Beijing, China.
Aside from the financial investments China has made in agriculture and infrastructure in Nigeria, the deal will provide a way for both countries to settle trade agreements in the Yuan.
However, this is the not the first time Nigeria has made attempts to include the Yuan into its foreign exchange reserves.
In 2011, under the governor of the Central Bank of Nigeria at the time, Sanusi Lamido Sanusi, a small percentage of the country’s foreign reserves were in the Chinese Yuan. At the time, Nigeria’s $32 billion in reserves were 79 percent in dollars with the rest largely held in Euros and Swiss francs.
According to a Bloomberg report Sanusi was cited saying the decision came because the Nigerian financial sector had a lot of confidence in the Chinese currency. “Confidence in China doesn’t mean lack of confidence in America. Europe and America will continue to be important parts of the world. Having said that, it will be almost living in a dream world to ignore China. It’s the second-largest economy in the world and it’s well managed,” Sanusi said.
In 2014, Central Bank’s deputy governor,Kingsley Moghalu, said the bank was looking to increase the percentage of Yuan foreign reserves in its possession from 2 percent to 7 percent. According to him, 85 percent of its foreign reserves were in dollars and it needed to have more in Chinese Yuan, as the country was taking a more important place in global trade. “It was clear to us that the future of international economics and trade will shift in large part to business with and by China. Ultimately the (Yuan) is likely to become a global convertible currency,” Moghalu said.
The International Monetary Fund’s decision last year to add the Chinese yuan to its basket of elite global currencies gives China a significant boost -- as well as increased pressures -- as it seeks to expand its international influence and rival the global economic order long dominated by the American dollar.
But with the IMF’s seal of approval, Beijing now faces pressure to continue, if not accelerate, efforts to liberalize its currency and broader financial and capital markets.
“This status comes with a certain set of burdens,” said Damien Ma, a fellow at the Paulson Institute, a Chicago-based think tank on U.S.-China relations. “Now that they’re in, their choices are limited.”
If China fails to meet expectations on transparency and financial reforms, Beijing could risk losing credibility or even its place in the IMF currency basket, Ma said.
Chinese officials have pursued the IMF status to a degree that may outweigh the practical benefits to their economy, some analysts noted.
Speaking to Per Second News Tuesday a financial expert said "Make no mistake the yuan is destined to be a major world reserve currency, if it is not yet. The farthest it can do to the dollar is eat up a chunk of the world’s dollar reserves through bilateral negotiations. Other than that, the yuan, at best, will elbow out the other major currencies as a world reserve currency, but not the dollar."
Now, the question is, will this integration of the Yuan help to shore up the Naira as intended by the president Buhari? The answer lies in the tentative decision that African countries are taking to dump the US Dollar as the prevailing currency in their foreign reserves. Since 2014, the world market has recognised the Yuan as a likely global reserve currency, a replacement for the dollar, which has led countries like Ghana, South Africa and Zimbabwe to integrate the renminbi (Yuan) into their financial markets. As a result of this, trade (however imbalanced) has increased between certain countries on the continent and China, as well as providing a fertile ground for demand for the currency on the continent.
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