An economist, Dr Chijioke Ekechukwu, has predicted that the naira would gain strength against the dollar when the Nigeria-China currency swap takes off.
Ekechukwu, a former director-general, Abuja Chamber of Commerce and Industry, expressed the view during an interview in Abuja.
According to him, the move on the part of the federal government was expected to reduce pressure on the dollar as letters of credit and other valid payments for imports from China would be in the Chinese currency.
“Foreign currency availability will no longer delay or impede importation of goods and services, especially from China,” he explained.
Ekechukwu emphasised that currency swap by its nature is an agreement to exchange currency between two foreign countries or parties.
He added that the agreement involved swapping principal and interest payments of equal value in another currency.
”When there is principal and interest involved, there is a borrowing.What it means to Nigeria and Nigerians is that at the agreed repayment date, we have the option to repay in the Chinese currency of renminbi (RMB) as against the U.S. dollar.
‘More foreign exchange in RMB will be available to the Central Bank of Nigeria to fund our importation and foreign settlement needs, especially from China,”Ekechukwu said.
But, he however, cautioned that the swap agreement would lead to unfavourable balance of payment for Nigeria against China,adding that local production capacities gained recently in manufacturing, agriculture and the non-oil export might be eroded.
He said the agreement was not likely to optimise export promotion and manufacturing as local manufacturers would not be able to compete favourably with imported goods in respect of pricing.
Nigeria and China sealed a currency-swap deal worth 2.4 billion dollars on May 4, 2018.
According to the Central Bank of Nigeria (CBN), the deal would provide local currency liquidity between Nigerian businessmen and their Chinese counterparts.