The naira, which traded between 315 and 317 on Wednesday, sunk sharply to a position between 320 and 322 on Thursday after the disclosure at the federal executive council meeting on Wednesday.
Godwin Emefiele, governor of the central bank of Nigeria (CBN), had spoken about the deal, adding that it would be concluded by the People’s Bank of China, with the Industrial and Commercial Bank of China (ICBC), the world’s biggest lender, as CBN’s representative.
However, Geoffrey Onyeama, minister for foreign affairs, said the deal was not a currency swap, but a deal for the flow of the yuan into Nigeria, adding that the dollar is still in use for international trade.
“It’s not really a swap. What it takes is that as the Chinese economy goes strong, there is some pressure on them from the trading partners, international financial institutions.
They agreed that the money should be internationalised,” he said while briefing the press after FEC meeting on Wednesday.
“They started that for a while. They were protecting it also. They did not allow it to be fully exchangeable. But now, their economy is fully strong, they are looking for a way to internationalise the currency.
“They were saying essentially that they wanted to segment it. For Southern Africa, South Africa is going to be the sort of a hub for the currency. So, they are going to be the focal point for the Chinese to make that available for trade in that area.
“In West Africa, they are looking for a hub. Ghana is interested in being the hub for the currency, to circulate it for those who want to use it.
It is not compulsory. But Nigeria is a bigger country with bigger economy. So that does make sense, they became a kind of attracted to Nigeria to be the hub.”
He said the currency gives Nigeria flexibility in buying Chinese goods with yuan rather than dollars, corroborating Emefiele’s stance.
“We still use the dollar. But if it not enough and there are some people who want to invest in the country, instead of crying that they cannot take dollar out, there might be yuan that they would be happy to take out because it is now internationalized as a currency and they can use it. So, it gives us a much larger option.
“As you know, a lot of importers now are complaining that they are not able to access the dollars to buy good and things like that. So, if we have in addition to dollar, we have yuan, then they can also have that available.”
The deal has not been totally consummated by all parties involved, but the prospects are bright for Nigeria as remnibi hub in West Africa.