raising interest rates higher and higher, implementing strict capital control measures and imposing administrative oversight actions such as requiring businesses to complete Forms amongst others.It should go without saying that high interest rates, administrative oversight, capital control measures and continuous transaction costs create a challenging business environment and hinder economic growthFurthermore, having trade settlement scenarios that are tripartite with currency hops creates transaction frictions. Simple economics tells us any transaction friction carries an associated cost.
Nigerians should be able to open their banking app and pay suppliers in India/Japan/China (even if amounts are capped to say 50 million monthly)We saw a lot of fanfare regarding the launch of PAPSS, as well as, the e-Naira initiative. However, neither has yielded the transformational results touted by the initiatives.The pros and cons of bilateral currency swaps can be a topic of debate in future articles. However, everyone knows that a long-term and more cost-effective alternative is for the Central Bank of Nigeria to facilitate the deployment of cross-border settlement solutions.Adopting technology to facilitate seamless cross-border currency settlement will solve a critical aspect of international trade settlements (some startups are already solving this problem see Nala, Tranglo, Nium or even meCash.
For context, imagine a Nigerian trader in Aba supplying shoes to his clients in Ethiopia with an agreement for trade settlement currency in USD.In this scenario, the client in Ethiopia will convert the Ethiopian Birr into USD, and pay for the goods. The Nigerian trader based in Aba will receive the USD and then convert it back into Naira to settle his input costs.This scenario creates challenges for scaling the relationship. Growing the business requires sourcing more USD first.Similarly, Nigerian businesses importing goods from Asia countries, currently need to enter separate arrangements to obtain the USD and then pay for the goods.
The Asian supplier will receive the USD to convert back to local currency to settle business input costs.So what should Nigeria’s Central Bank be considering in light of emerging trends on Imports/Trade Partners? It is little wonder that from an intra-African trade and Nigeria-Asia trade perspective, a colossal obstacle to scale remains timely transaction settlement.As Nigeria seeks more trade with the Asia continent, two actions that should be paramount for Nigeria’s Central Bank remainLarger Bilateral FX Swap arrangements similar to the Yuan Swap, as well as,Stronger commitment to deploying technology-driven cross-border payment solutions.
Now that the CBN is addressing FX volatility with some stable trend in FX rates being observed, AND Nigeria’s foreign exchange reserves growing, it is now time to revisit simplifying cross-border with robust security.Enabling Nigerians to pay for imports directly in Asian currencies will arguably reduce the nation’s import unit costs, lower inflation, and improve our cost of living and quality of living.Incremental benefits such as enabling Nigerians to tap into the India Healthcare market to source high-quality and affordable drugs directly or purchase new products rather than used equipment will also be a win-win for consumers.So do we still really need the dollar?
