Experts have expressed fear about the new agreement signed by Nigeria to include China’s currency, Yuan in its foreign reserves. While they envisage many opportunities as result of the agreement, they hold several reservations. One reason for this is because China is investing in US treasury and are the largest purchaser of US treasury.
They are also wary because China recently devalued its currency and the market reacted with heavy loss.
They also fear that since China is a communist society, government dictates what happens and has total control on capital inflow and outflow, a phenomenon which may impact negatively on foreign reserves. This also makes the Yuan unpredictable and China will not hesitate to weaken it to increase its exports.
On the part of Nigeria, experts think the move is a bit hasty and the move to change the mix of the reserve has not been well thought out.
Currently, there is a large trade imbalance between China and Nigeria.
“The Chinese use Nigeria as a dumping ground for goods that would not be allowed into the US and they are rewarded for that by adding them to the reserve portfolio mix,” an expert said.
It is also speculated that the US and other investor may not be comfortable with the move. That may increase outflows and cut the confidence level of foreign investors in the Nigerian economy.
However, the agreement remains one of the major achievements of President Muhammadu Buhari in his ongoing visit to China.
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