Nigeria, China renew $2 billion currency swap deal

Nigeria and China have renewed their currency swap agreement worth 15 billion yuan ($2 billion), a move expected to strengthen cooperation and promote bilateral trade and investment between both countries.

In a statement released on Friday, the People’s Bank of China (PBOC) confirmed that the arrangement will remain in place for another three years, with provisions for renewal by mutual agreement.

“The agreement is valid for three years and can be renewed upon mutual consent,” Bloomberg quoted the bank as saying.

The deal allows for the direct exchange of the Chinese yuan and Nigerian naira, bypassing reliance on the US dollar and reducing transaction costs in trade between the two nations.

Originally signed in June 2018, the currency swap facility was introduced to address liquidity challenges for businesses in both countries and to facilitate trade in their respective currencies.

The deal enabled the exchange of up to 15 billion Chinese yuan (CNY) for 720 billion Nigerian naira (NGN), equivalent to $2.5 billion at an exchange rate of NGN305 to $1 at the time.

According to the agreement, the swap is designed to streamline trade transactions by eliminating the need for US dollars as an intermediary currency.

It provides liquidity in naira for Chinese businesses operating in Nigeria and in yuan for Nigerian firms trading in China. This mechanism aims to facilitate seamless transactions, support bilateral investments, and enhance market efficiency.

The arrangement allows the central banks of both countries to inject liquidity into their respective financial systems via bi-weekly auctions.

By doing so, they promote the purchase, sale, and repurchase of yuan and naira to support trade and investment activities. The agreement shows the deepening economic ties between China and Nigeria, prioritising direct currency exchanges to reduce dependency on the dollar and encourage cross-border trade.

Nigeria remains one of China’s largest trading partners in Africa, with bilateral trade volumes surpassing $22.6 billion as of 2023.

Key exports from Nigeria include crude oil and agricultural products, while Chinese goods dominate the Nigerian market, ranging from electronics to construction materials.

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This renewal comes at a time when Nigeria is seeking to stabilise its currency, the naira, which has faced significant depreciation following exchange rate liberalisation earlier in 2024.

By increasing access to yuan, the currency swap is expected to reduce pressure on Nigeria’s dollar reserves and bolster its trade position with China.