The ongoing challenge of stabilising the naira/dollar exchange rate has heightened calls on government to revisit the once hyped Naira/Yuan currency swap deal which many now fear may have been bungled.
The Naira/Yuan currency swap would have allowed Nigeria to borrow Yuan and lend naira for purchases from China, by simply short-circuiting the process of converting the Nigerian currency to a
dollar before the further conversion of the dollar to Yuan. China has such Yuan swap arrangements with 28 countries worldwide, including Britain and Australia.
dollar before the further conversion of the dollar to Yuan. China has such Yuan swap arrangements with 28 countries worldwide, including Britain and Australia.
But officials say the deal has been put on hold, following some perceived ‘impossible’ conditions given by the Chinese government, possibly to throw Nigeria off the deal.
“One should not put all his eggs in one basket, if you divide your eggs when there is a crisis, you save some.
“We have been relying on the US dollar but unfortunately, it is realistic that it is not been taking us to the promised land,” said Bauchi State governor, Mohammed Abubakar, who spoke in a Hausa
interview in Abuja.
interview in Abuja.
“We have been going backward everyday, all Nigerians can tell the exchange rate of the naira to the dollar 10-15 years ago and how much it is now. If you compare that with today, it has become necessary for government to discuss with the Chinese government and they have agreed that they can sit down and agree” Abubakar added.
He, however raised the hopes on the deal, saying Nigeria intends to continue the dialogue on the matter until it reaches an agreement with the Chinese government.
BusinessDay gathered that penultimate week, official concerns came to a head as exasperated governors at the National Economic Council openly expressed their displeasure and gave Central Bank governor,
Godwin Emefiele the marching order to review the monetary policy as relates to exchange rates. They had also revisited the need to create an alternative currency for trade in the country.
Godwin Emefiele the marching order to review the monetary policy as relates to exchange rates. They had also revisited the need to create an alternative currency for trade in the country.
“As I speak to you, we are about to seal the deal with the Chinese. The only one issue remaining is the condition by the Chinese government that Nigeria should not seek for assistance anywhere else, after signing the
deal,” Abubakar said.
deal,” Abubakar said.
Nigeria currently has the US dollar as its major trade currency, despite having China as its biggest trade partner. Trade between Nigeria and China accounts for nearly one-third of the trade between China and West Africa.
Trade volume between Nigeria and China hit N2.9 trillion as at the end of 2015.
In April Last year, amid rising pressure on Nigeria’s Foreign Exchange, the government signed a currency swap deal with China, as it considered ways to shore up its ailing currency, as well as fund a projected N2.2trillion naira 2016 budget deficit.
During Buhari’s visit to Beijing, the Industrial and Commercial Bank of China Ltd (ICBC), the world’s biggest lender, and Nigeria’s Central Bank signed the deal that would have seen Nigeria possibly issuing yuan-denominated bonds in China. The deal was also meant to assist in easing the pressure on Nigeria’s foreign exchange.
However, almost one year later, government officials tell BusinessDay that the Chinese government may have given Nigeria those conditions due to the lack of confidence in the country’s monetary management policies.
An official who spoke on condition of anonymity, said there have been growing concerns in the international community on the country’s FX policies which sources say it is not clear if it is managed independently without
the input of the Presidency.
the input of the Presidency.
Government sources are blaming the CBN for bungling the currency swap deal, believing that the Chinese government gave impossible conditions because they are not confident about the country’s currency management policies.
“The swap would have been very useful because of our trade volume with China. It would have crashed the dollar”.
After the National Economic Council (NEC) meeting, where the governors expressed their displeasure, the CBN last week rolled out new FX policies, increasing the availability of Foreign Exchange in order to ease the difficulties encountered by Nigerians in obtaining funds for Foreign Exchange transactions. The CBN commenced the provision of direct additional funding to banks to immediately meet the needs of Nigerians for Personal and Business Travel, Medical needs, and School fees.
Meanwhile, commenting on the new FX policy by the CBN, on Channels television, the Managing Director and Chief Executive of Financial Derivatives Company Limited, Bismark Rewane, said it is a movement in
the right direction.
the right direction.
Rewane said the CBN however still has to deal with the “issue of confidence” adding that “the currents are positive but the actions still leave room for different exchange rates”.
