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Naira at Crossroads as China Pivots Away from U.S Dollar

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China may be ready with gloves on, in the rings for a currency war with the West, especially its arch rival, the United States, as it begins to redirect its import and export pricing.

China’s President Xi Jinping said in Riyadh on Friday that China and Gulf nations should make full use of the Shanghai Petroleum and National Gas Exchange as a platform to carry out yuan settlement of oil and gas trade.

This is in line with the musings at the recently concluded BRICS event, where China and Russia noted there is need for a new world order and new international reserve currency.

The question then is, where lies the fate of the Naira amid the ongoing geopolitical realignment?

Abiola Rasaq, Economist and former Head Investor Relations at United Bank for Africa Plc says China would soon start a currency war and that may be so strong that it may break the camel’s back.

“This is not only because of China’s share of global trade but more importantly the diversity and components of the trade. China exports necessities to most regions of the world and in some cases China has created a monopoly situation for the exports of some African and Asian nations, thus tying the destiny of those economies to China, as China controls both ends of such countries external trade sector.”

Indeed, the Central Bank of Nigeria (CBN) sold a total of Chinese Yuan CNY1.26 billion in the First Half (H1) of 2022, under its Naira Yuan Bilateral Currency Swap Agreement, with the People’s Bank of China (PBoC).

This was done in 13 auctions during the review period, equivalent to N79.66 billion, to help facilitate trade between both countries according to the latest CBN data. One (1) Chinese Yuan equals N63.23.

The implementation of the three-year N720.00 billion/CNY15.00 billion Naira Yuan Bilateral Currency Swap Agreement between the Central Bank of Nigeria (CBN) and the People’s Bank of China (PBoC), which commenced in July 2018 was renewed in April 2021 for another three-year term.

Nigeria Exports to China was US$1.85 Billion during 2021, while imports from China was US$22.64 Billion during 2021, according to the United Nations COMTRADE database on international trade.

Nigeria’s trade with China is growing more important than its trade with traditional Western partners.

In 2021, Nigeria Exports to United States was US$2 Billion, while imports from the U.S. amounted to around 3.87 billion U.S. dollars, according to the United Nations COMTRADE database on international trade.

China has solidified exports to many of its import partners so much that they direly need Yuan to the point that it would almost be like going back to the classical age of trade by barter.

Indeed, analysts say many countries would gladly welcome Chinese currency strategy because they may inadvertently or factually consider it as a measure to release their currency from the U.S. dollar global reserve currency status and a decoupling from recent concerns on U.S. dollar hegemony as some claim.

“Some economies have little or no choice anyways given their import basket is mainly filled with Chinese products and they are already entrapped in a pseudo-Chinese colonialism,” Rasaq added.

For Nigeria and its currency, the Naira, it would mean walking a thin line between pleasing traditional Western partners and adopting a more pragmatic approach that acknowledges the future probably belongs to China and the East.

“The U.S. and indeed, Europe and the rest of the Western allies need drastic measures to mitigate against this Chinese measure of dominating the world’s economy and I hope relevant policy makers would take right actions and don’t take this as a tea party!” Rasaq said.

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