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LAGOS, July 4 (Reuters) – Nigeria's central bank is courting local companies importing goods from China to use the yuan instead of the US dollar to support its naira currency and increase its reserves.
Central bank officials held Wednesday a public meeting with companies in Lagos to introduce the yuan for imports from China, in anticipation of the Asian currency auction later this month.
The dollar is Nigeria's main commercial currency. The OPEC member suffered severe shortages of dollars after the price of crude oil, its main export and main source of foreign exchange, plunged in late 2014, which led to the introduction of controls. in 2015.
and sold the dollar on the interbank market to increase liquidity after floating the naira for investors.
"The central bank will encourage users who import goods from China to use the yuan and not the dollar," officials said.
"The burden of dollar demand from trade with China would be removed from our foreign exchange reserves," they added, adding that initial yuan transactions could be minimal.
Nigeria signed a $ 2.5 billion foreign exchange deal with the People's Bank of China (PBOC) in May.
Authorities said the agreement was aimed at reducing the use of the dollar and "thereby reducing the pressure on the naira-dollar exchange rate."
Under the swap, the central bank of Nigeria would hold 720 billion nairas in favor of the PBOC while the Chinese central bank would hold 15 billion yuan, which would imply an exchange rate of 48 nairas for the yuan.
The bank also said the move was aimed at encouraging Chinese companies to buy local raw materials and semi-finished products to pay in the naira. However, the payment of crude oil sold to China would be in US dollars, they added.
Nigeria has tried several options to reduce pressure on the naira. But some of its plans may take time to materialize as it needs to develop its economy to reduce imports.
He is currently running a large trade deficit with China, his biggest trading partner. Nigeria imported goods worth nearly $ 2 billion a year from China last year, compared with nearly $ 500 million imported by the Chinese, according to the figures.
Economists are concerned that the exchange of foreign exchange may aggravate the deficit and trade balance. Some importers told Reuters that a strong naira would wipe out the benefit of the swap, but added that the naira could weaken, especially after the elections next year.
Nigeria has about 4.4 percent of its $ 47 billion foreign currency reserves denominated in yuan, while the rest is held in US dollars. Officials expect this initiative to also boost foreign investment from China to Nigeria. (Report by Chijioke Ohuocha, edited by Toby Chopra)
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