China is scoring great goals across African capitals. I am a big fan – the world needs choices. Imagine a world without China and only Donald Trump. By now, he would have banned Rwanda from trading in the world just because they rejected buying used clothes from America. The Central Bank of Nigeria is in the game: it has flagged the sale of foreign exchange in Chinese Yuan.
The Central Bank of Nigeria (CBN) yesterday flagged off its intervention in the sale of foreign exchange in Chinese Yuan (CNY), signaling the consummation of the Bilateral Currency Swap Agreement (BCSA) signed with the People’s Bank of China (PBoC) on April 27.
The import of the foreign exchange currency diversification is aimed at checking the rising pressure on the United State currency- Dollar which high demand for all international transaction before now has had a negative impact on the county’s inflationary trend, leading to the devaluation of the Nigerian currency – the Naira.
Also, by adopting a second direct convertible currency, the additional cost of having to go through a third currency is now being erased and the CBN believes this would ultimately positively affect the bottomline of imported goods and services from China
Disintermediation does not only apply in the technology world where producers cut-off middlemen or intermediaries to reach consumers directly. What is happening in the Chinese currency swap is the disintermediation of the U.S dollars. The $2.5 billion currency swap deal will open opportunities, hopefully, for manufacturers in Nigeria. If you want to buy something from China, you do not need to look for U.S. dollars. If you have your Naira, the government will make it possible for you to pay directly in Yuan.
With the ease this swap deal will bring to Nigerian companies, there is no reason for any company to buy something which can be found in China in any other place. Going forward, dealing with Chinese partners would be as simple as paying a local Nigerian company. This is significant and more Nigerian importers and manufacturers will certainly bias to buy from China. All the troubles of dollars, pounds sterling and euro will fade at least in one area.
This is a huge shift and could be a turning point for most businesses in Nigeria. I expect this to help the Naira appreciate 5-10% over U.S. dollars in the next 12 months (other things being equal). Yes, this swap will remove about 30% of forex burden on the U.S. dollar in Nigeria.