Nigeria Becomes Clearinghouse For Yuan Denominated Transactions For The Whole Of Africa Following Agreement
– President Muhammadu Buhari and Central Bank of Nigeria (CBN) Governor, Mr. Godwin Emefiele moved closer to actualizing their promise to strengthen the naira against the United States dollars by signing Landmark Currency Deal with the Industrial and Commercial Bank of China Ltd on Tuesday in Beijing, China.
The agreement will allow Nigerian traders and businesses, which imports mainly from China conclude their transactions in the Chinese currency, the Renminbi (Yuan), instead of the dollar.
Information from China indicated that the new agreement would see Nigeria-China trades, which accounts for over 70 percent of imports into Nigeria, concluded in the Yuan.
Until now over 90 percent of international trades between Nigeria and the world is done in dollars, and in the process putting so much pressure on the naira. Nigeria imports almost all it needs from the West, Middle East and Asia.
The CBN is expected to diversify a huge chunk of Nigeria’s foreign reserve from the dollars to the Yuan to perfect the agreement.
“It means that the renminbi (Yuan) is free to flow among different banks in Nigeria, and the renminbi has been included in the foreign exchange reserves of Nigeria,” Lin Songtian, director general of the African affairs department of China’s foreign ministry, told reporters in Beijing a few minutes after the agreement was signed between the Governors of the nations’ reserve banks in the presence of President Buhari and President Xi Jingping of China, who is hosting Buhari and top Nigerian officials to a state visit.
Lin said a framework on currency swaps has been agreed with Nigeria, making it easier to settle trade deals in Yuan. China has signed currency swap deals with countries ranging from Kazakhstan to Argentina as it promotes wider use of its Yuan.
It was exclusively gathered that Nigeria would become the clearinghouse for Yuan denominated transactions for the whole of Africa following the agreement.
Beijing also signed agreements to develop infrastructure in Nigeria, part of a drive to deepen its ties with Africa. It has offered Nigeria a loan worth $6 billion to fund infrastructure projects.
However, this is the not the first time Nigeria has made attempts to include the Yuan into its foreign exchange reserves.
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.
Bloomberg reports that 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 renminbi (Yuan) is likely to become a global convertible currency,” Moghalu said.
Now, the question is, will this integration of the Yuan help to shore up the Naira as intended by the president? 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.
ICBC signed a $2 billion loan deal with Dangote group, the company owned by Africa’s richest man, Aliko Dangote, to fund two cement plants it plans to build, Lin told Reuters.
China’s official Xinhua news agency cited President Xi as telling Buhari that there was huge potential for economic cooperation, naming oil refining and mining.
Nigeria is also considering issuing Panda bonds (mainly Yuan denominated) as against euro bonds as they are considered cheaper.
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