By Stanley Opara

Friday, 7 Jan 2011

Following the addition of the Chinese yuan to tradeable currencies in the Nigerian financial system by the Central Bank of Nigeria, there are strong indications that the exchange rate of the naira to the dollar will improve in 2011.

This inference is hinged on the belief that the pressure on the Nigerian financial system to buy dollar for Chinese transactions would reduce, thereby reducing pressure on the naira.

The Executive Secretary/Chief Executive Officer, Finance Houses Association of Nigeria, Mr. Benn Nwokike, who confirmed this position on Thursday, told our correspondent that Chinese investments in Nigeria were growing, and the CBN‘s directive was timely.

He said the Chinese economy was growing faster than strong economies like the United States, adding that the addition of the yuan to a list of currencies that could be used for trade settlement in the domestic foreign exchange market, was an economic decision that would pay-off in the short-run and the long-run.

”This will reduce demand for the dollar, improve the condition of the naira, and give the authorities the ability to manage the exchange rate,” Nwokike added.

In the same vein, a Chartered Accountant, Tax and Management Consultant, and the Chairman, DCSA Consults, Chief Denis Alaribe, maintained that the move would further improve the volume of trade between Nigeria and China, with positive implication on the overall economic performance.

He, however, warned that the CBN should be careful to avoid money laundering and other forms of currency abuse.

China is encouraging countries to use the yuan for trade settlement and diversify bilateral trade, away from the dollar and about one third of Nigeria‘s imports come from Asia, most of them from China, the CBN said recently.

Reiterating this, the CBN spokesman, Mr. Mohammed Abdullahi, said, ”We have issued a circular to the banks permitting them to trade in yuan. China is one of the fastest growing economies and Nigeria‘s trade relations with China are increasing.”

The data for 2009 indicated that Asian imports into Nigeria‘s economy rose by 6.6 per cent during the year, while imports from Western nations declined 4.4 per cent, reflecting its shifting trade pattern.

The volume of yuan trading in Nigeria is initially expected to be very low, but it is seen as an important symbolic move.

Russia‘s exchange introduced yuan-rouble trading in December and October, and according to the Turkish Prime Minister, Mr. Tayyip Erdogan, China and Turkey had agreed to use the lira and the yuan in bilateral merchandise trade.

Nigeria‘s move will enable lenders in Africa‘s most populous nation to offer yuan accounts to their customers, some financial experts say.

According to the CBN, the addition of the yuan brought the number of tradeable currencies in Nigeria to 13, including the United States dollar, Euro, British Pound and Japanese Yen, among others.

 

Source: Punch