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Nigeria and India are on the verge of finalizing a local currency settlement system, a move that could significantly boost bilateral trade between the two economic giants. This agreement, currently in its final stages of negotiation, was a key outcome of the recent India-Nigeria Joint Trade Committee meeting held in Abuja.
The focus of the meeting was on areas of shared interest between both countries, especially bilateral trade and the inherent growth potential.
The statement reads, “To this effect, both sides identified several areas of focus for enhancing both bilateral trade as well as mutually beneficial investments. These include resolving of market access issues of both sides, and cooperation in key sectors such as Crude oil and Natural Gas, Pharmaceuticals, Unified Payments Interface (UPI), Local Currency Settlement System, Power Sector and Renewable Energy, Agriculture & Food Processing, Education, Transport, Railway, Aviation, MSMEs, Development etc.
“Both sides agreed to early conclusion of Local Currency Settlement System Agreement to further strengthen bilateral economic ties.”
Traditionally, international trade relies on converting currencies through a third party, often the US dollar. This process incurs transaction costs and exposes businesses to exchange rate fluctuations. A local currency settlement system eliminates these hurdles by allowing direct exchange between the Naira and the Rupee, facilitating smoother and potentially cheaper cross-border transactions.
This agreement holds promise for several reasons. First, it can simplify trade finance, a crucial aspect for businesses, especially small and medium enterprises (MSMEs). Reduced transaction costs can incentivize increased trade volumes in sectors like pharmaceuticals, agriculture, and oil & gas, which form the backbone of India-Nigeria commerce.
Second, the pact could foster greater financial integration between the two countries. As the use of local currencies becomes more commonplace, banks and financial institutions may develop new products and services tailored to facilitate India-Nigeria trade. This could create a more robust financial ecosystem supporting bilateral economic activity.
However, some challenges remain. Establishing a functional local currency settlement system requires robust infrastructure and efficient communication channels between the central banks of both countries. Additionally, ensuring sufficient liquidity in both the Naira and the Rupee for cross-border transactions will be crucial for the system’s success.
Despite these challenges, the potential benefits of the local currency pact are undeniable. It signifies a growing economic partnership between Nigeria and India and paves the way for a more efficient and mutually beneficial trade relationship. As the agreement is finalized, businesses in both countries can prepare to leverage this new framework and explore the vast opportunities it presents.
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