BETWEEN PRESIDENT BUHARI’S-CHINA’S CURRENCY SWAP DEAL AND THE DOUBTING THOMAS!
BETWEEN PRESIDENT BUHARI’S-CHINA’S CURRENCY SWAP DEAL AND THE DOUBTING THOMAS!
By:
Nurudeen Dauda
15th April ,2016 nurudeendauda24@yahoo.com
nurudeendauda24@gmail.com
nurudeendauda.blogspot.com
Nigeria under President Buhari has become the 34th country to sign “Currency Swap Agreements” with China; Chinese Yuan(Renminbi) is the second most traded currency after dollars, however, China has “Currency Swap agreements” with the following countries: (1)European Union (27 member countries)-9thOctober,2013;(2) United Kingdom-22nd June, 2013;(3) Ukraine-26 June,2012;(4)Canada-8th November,2014;(5) Unite Arab Emirates-17th January,2012;(6)Brazil-26th March,2013(7)Russia-23rd June,2011;(8) Turkey-21st Febuary,2012;(9) Australia- 22nd March,2012;(10) Qatar-3rd November,2014;(11)South Korea-12th December,2008;(12)Malaysia-8th Febuary,2009;(13)Argentina-29th March,2009;(14) Indonesia-23rd Mach,2009;(15)South Africa-10th April,2015;(16) Chile-25th May,2015;(17) Switzerland-July,2014;(18)Hong Kong-20th January,2009;(19) Belarus-11th March, 2009;(20)Iceland-9th June,2010;(21) Singapore-23rd July,2010;(22)New Zealand-18th April,2011;(23)Uzbekistan-19th April,2011;(24)Mongolia-6th May,2011;(25)Pakistan-23rd December,2011;(26) Thailand-22nd December,2011;(27)Hungry-9thSeptember,2013;(28)Sri lanka-16th September,2014;(29)Nepal-23rd December,2014;(30)Tajikistan-5th September,2015;(31)Albania-12th September,2013;(32)Kazakhtan-13th June,2011; and (33) Suriname-18thMarch,2015.
Since the financial crisis of 2007, central banks around the world have entered into a multitude of bilateral currency swap agreements with one another. These agreements allow a central bank in one country to exchange currency, usually its domestic currency, for a certain amount of foreign currency. The recipient central bank can then lend this foreign currency on to its domestic banks, on its own terms and at its own risk.
With the sign of deal by the CBN under President Buhari 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. The Nigerian Central bank has earlier on has a plan to diversify its foreign exchange reserves away from the dollars by switching a stockpile into Yuan. It now comes easier to settle trade deals in Yuan. It will reduce our foreign transactions problems.
Nigeria has been witnessing crisis in the “Foreign Exchange Market” whereby the country’s source for foreign exchange reduced with more 80% (Crude oil which is the main supply source collapsed from $115 dollars in June, 2014 to $27 in January, 2016).however, the “Demand for Foreign Exchange” remains very high despite drop in “Supply for Foreign Exchange” thereby leading to high rate of “Inflation”. We import about 90% of our needs from Rice to Toothpick etc. About 60% of our import comes from China. This agreement will reduce the “Dollarization” of our economy and also our trade as well as business relations with China will improve.
China’s Foreign Policy has been more on the “economy” “less political” or “Exploitative”. China has since overtook Japan and became the “second largest economy” in the world after US; China has also overtaken Russia to become the “second largest exporters of arms” after US. China has been growing from strength to strength. China has over $4trillion in their Reserves. China is the biggest BRICS member (Brazil, Russia, India, China and South Africa) Martin O’Neil, a British economists Predicted that by 2030 BRICS will emerge as the “global powers”. Some analysts predicted that China will one day over take the US economy.
Contrary to the “perception” of some Nigerians China has “Quality Products”. In Nigeria people are used to saying China phones as a way of downgrading one’s phone. China produces “quality products” and sells in Europe and America. Europe and America have very good “standard organizations” of which before any product enters Europe or America must pass through their scrutiny. Unfortunately, our Standard Organization of Nigeria,(SON) needs must to be desired, most of our Business men ask for “Substandard Product” from China in order to “maximize profit” and that because China’s producers want customers they produce according to demand.
Presently American companies/firms are finding it very difficult to compete with china’s products with the same “Quality” with American products in American Markets. China has “low production cost” compare to Europe and America due to its availability of labour owing to its population; the cost of labour in America is four (4) times higher than the cost of labour in China as such China produces product with the same quality with that of America but with lower cost. Some American companies are now setting up branches in China in order to enjoy the cheap labour and later take it back to the American market to enable them compete with Chinese products.
China’s market is preferred to the poor and developing nations because of three major reasons: (1) Weaker Currency (in comparison to dollars and Euro) which means is cheaper to buy goods with the same quality in Europe and America in China. (2)Cheap labour which means cheaper cost of production hence lower prices compare to Europe and America. And (3) Massive infrastructure as in Europe and America which reduces cost of production drastically.
Hey is economy not sentiment! May God bless Nigeria!