…seeks boost for Naira-Yuan Swap deal, derivatives market support
By OKEY ONYENWEAKU
The ongoing economic, trade and currency wars between the United States of America and Russia/ Asian countries present Nigeria with some lifetime opportunities that need to be explored, President, Association of Bureau De Change Operators of Nigeria (ABCON), Alhaji (Dr) Aminu Gwadabe has said.
Speaking yesterday to financial journalists in Lagos, the ABCON boss said that Nigeria has to strategize and capitalize on the emerging global trends to strengthen Naira -Yuan Swap deal and boost derivatives market with new product development.
He said the fear of the dollar losing its global dominance is real as Russia and Asian countries unite against the United States.
He said that Russia and Asian countries are already becoming less reliance on dollars and its hegemony, advising Nigeria and other emerging markets not to be caught unaware.
Gwadabe said the insistence by Russia and China that the global economic system must change in such a way as to stop the United States from being able to exert economic pressure on world countries is an indication of how both countries can pursue the agenda, which has certain implications for Nigeria economy , its currency and financial system.
He recalled that at the recently concluded G20 meeting in Tokyo Britain, France and Germany announced that the special trade mechanism that they have been working on this year is now up and running. It is called the Instrument in Support of Trade Exchanges (Instex) and it will permit companies in Europe to do business with countries like Iran, avoiding American sanctions by trading outside the SWIFT system, which is dollar denominated and de facto controlled by the US Treasury.
Gwadabe said the significance of the European move cannot be understated as was meant to weaken dollar dominance as the world’s trading and reserve currency. Besides, talks have been on for years on establishing trade mechanisms that would not be dollar based, but they did not gain any momentum until the Trump Administration abruptly withdrew from the Joint Comprehensive Plan of Action (JCPOA) with Iran over a year ago.
For instance, the US had imposed sanctions on Russia over allegations of interference in the Ukrainian conflict and in the US presidential election in 2016, both of which Moscow has denied. Washington also initiated a trade war with China, and has been attempting to force Chinese tech-giant, Huawei out of the global market.
Gwadabe disclosed that rather than progressing towards a deal, and despite reaching a tentative truce at the G20 summit in Osaka, the United States and China are as entrenched in their positions as ever.
“China is insisting that as a prerequisite to a deal, the US remove existing tariffs on $250 billion worth of Chinese goods. Again, China is unlikely to do more to placate the US and bring the crisis to an end,” he predicted.
Speaking further, he said after one year of the intense trade war between both parties, it will be difficult for the United States to remove all the tariffs that have been implemented so far to allow for final settlement.
He disclosed Nigeria is already benefiting from the crisis, adding that it has led to continuous rise in crude oil prices, which is good for the naira and Nigerian economy.
Gwadabe said local banks stands to gain more from the $2.5 billion currency swap deal between Nigeria China as the economies of both countries need each other, and so do their businesses and banks.
“The banks in both countries are not only going to be earning fees from the ensuing transactions, but will begin new lending to businesses. It was these gains and the need to keep the naira stable prompted the apex bank to sign the bilateral currency swap agreement with the People’s Bank of China (PBoC).
He explained that in local currencies, the swap is worth 15 billion Renminbi (RMB) or N720 billion. The three-year renewable deal will allow for the direct exchange of RMB and naira for the purpose of trade and direct investment between both countries.
The ABCON Chief said that since the beginning of April this year, oil prices have remained around $70/barrel as the trade war rages. He said the US sanctions on Iran and Venezuela have tightened the supply of crude oil to the market and put upward pressure on oil prices.
“The rising oil prices as a result of tension in the Persian Gulf and the increasing trade wars between two world economic giants, China and America will help to take the naira to another next level of stability . I advise the Federal Government and the Central Bank of Nigeria (CBN) Management to take advantage of the two crises- trade tensions and rise in crude oil prices by introducing that will support growth and development opportunities,” he said.
He also called for a deepening of the Naira-Yuan swap deal. He said that Russia and the Asian countries are already utilizing their Yuan Swap agreement with China to strengthen their local currency, a strategy Nigeria is also expected to pursue.
The ABCON boss expects the CBN management to deepen currency SWAP pact with China and diversify commodity exports to the United States in other to diversify foreign exchange earrings for the country.
“Other great areas to focus for diversifying our foreign exchange earnings include promoting Diaspora remittances for economic buffer and foreign reserves accretion as seen in India and United Arab Emirates where migration remittances have lifted their economies,” he said.
He said that effort should also be intensified by fiscal authorities in empowering the youths through job creation and higher productivity .
“The ABCON Executive Council under my leadership will continue to promote improved capacity and technological advancement among BDC operators. We are also committed to better skills acquisition for BDC operators to elevate them to viable monetary regulatory partners and lead player in exchange rate stability,” he said.
He said that ABCON under his leadership will continue to support the CBN progressive policies, including the Investors and Exporters (I&E) Forex Window which has attracted $48 billion worth of transactions to the economy, and supported rise external reserves to $45 billion in April 2019 from $23 billion in October 2016.