Revisiting Nigeria’s currency swap deal with China and how to make it work

In May, Nigeria became the third African country after Zimbabwe and Ghana to sign a bilateral agreement with China to operate a currency-swap deal aimed at facilitating enhanced trade between both countries, on the precedence that China is Nigeria’s biggest trading partner.

The agreement that is valid for three years and can be extended upon mutual consent will see to the provision of naira liquidity to Chinese businesses and provide RMB liquidity to Nigerian businesses respectively, thereby improving the speed, convenience and volume of transaction between the two countries.

However, Nigeria still has to do more in seeing that this agreement would not deal a colossal blow to its economy and its citizens who are excited at the prospect of  getting the techno phone they bought at N80,000 for N12,000. Though this is a welcomed positive development, it is however not yet uhuru until Africa’s biggest economy align and structure itself towards the path of growth.

It is indeed wise to consider the currency swap deal since almost 70% of the goods  imported by Nigeria come from China and Asia and 12% from the U.S. There is more loss to using the dollar to transact with China. Instead of using dollars at 360 naira to 1 dollar while importing China goods, citizens and businesses can now buy Yuan at 47 naira to 1 Yuan and import the goods directly. Life seems easy with this, right? Considering one can now buy goods in Yuan 5 times cheaper than in dollar.

This can also be considered a victory over the supremacy of dollars in Nigeria’s daily economic activities. Ideally, those who hoard foreign currencies to make gains will have to offload them in order to save themselves from the roaming aftermath of the currency swap deal with China as dollars and pounds will flood everywhere with no buyers. With the pact, inflation promises to go down drastically as the price of commodities will drop consequently.

Nigeria, however, needs to take measures in ensuring that there is no backlash to the action taken to aid the nation’s growing economy. Firstly, the nation needs to work on its GDP, otherwise the currency swap effort will succeed at launching the China economy into a hyper super power class. The Yuan will be strengthened at an astronomical rate against the naira if Nigeria remains a consuming nation.

Back in the seventies when the exchange rate was 1 naira to 2 pounds sterling, the dollar was not reckoned with. Policy changes over the years that somersaulted to different dimensions has, however, placed naira in an unfavorable position against the dollar. Things are yet to change with all the policies implemented in the past. There is need to put in place structures that will aid the country’s benefit from the currency swap deal. Policies need to be strengthened to ensure that Nigeria becomes a producing nation so as to export, which in turn would strengthen the naira.

The Central Bank of Nigeria (CBN) has to shoulder most of these responsibilities as it must ensure that constant oversight and regulation is at its peak so that the rise in demand for the Yuan will not result in a possible depreciation of the Naira against the Chinese currency and further widen the gaps in trade balance and balance of payments in favor of China.

Government agencies including the National Agency for Food, Drugs Administration and Control (NAFDAC), the Consumer Protection Council (CPC) and the Nigeria Customs Service charged with the responsibility of guarding the nation against unbridled influx of goods need to rise to that course as Nigeria is now more vulnerable to being a dumping ground for inferior/substandard Chinese products.

Though it is a swinging time for both Nigerian and Chinese firms as the much-awaited currency swap between their respective countries has finally become a done deal, some doors have to be closed to usher in a truly favorable era of prosperity for the economy under the currency swap.