Last week,the Buhari Economic team pulled a coup of a kind,virtually pulling the rug off the feet of the greenback(US$) and crowning the Chinese Yuan as the 'new kid on the block' as far as international transactions are involved.The ultimate aim- to 'crash' the N-USD exchange rate by drastically reducing the demand for the $ in buying imports.But how will this work ?.
First of all,it is pertinent to note that over 70 percent of Nigeria's foreign imports come from China but unfortunately/unreasonably is purchased with the US dollar.To import from China,Mr Emeka sources for the $ through CBN or through the black market (depending on what he's importing), pays Chinese suppliers who then changes to Yuan to supply him.This kind of merry go round makes the Dollar so scarce despite the fact that we really don't import much from the US !!.So,what's the alternative ?.
That exactly is what the CBN agreement with the Chinese apex bank is all about.From now on,the Yuan has become a 'convertible currency' in Nigeria.Thus business people can transact directly with China using the Yuan thereby bypassing the US$.Also to make the currency available,large parts of our foreign reserves are to be dominated in the Yuan.
The expected medium term effect is that the value of the naira will greatly stabilize against the Dollar and industry watchers are projecting an exchange rate of between N150-200 against the USD at both the official and parallel markets stemming from massively reduced demand for the green back.
Indeed,we have interesting times ahead.
-Taiwo Oguntoyinbo
