The Chinese and Nigerian governments have renewed a three-year “currency swap” agreement worth 15 billion yuan, or $2.05 billion. The stated objective is to strengthen trade between the two partners, judging by the press release published by the People’s Bank of China – the Central Bank – (PBOC)
Currency swap is a mechanism that allows trade and investment to be carried out directly in local currencies, thereby reducing dependence on the US dollar, the dominant currency of global trade, and fluctuations in exchange rates. Considering the size of the two countries’ economies, this agreement is more than modest, despite the diplomatic bluster on both sides. In Beijing, the authorities say they want to “strengthen financial cooperation, extend the use of local currencies and facilitate trade and investments between the two countries.” Valid for three years, this currency swap can be renewed by mutual consent .
The first swap between Abuja and Beijing dates back to 2018 between the Chinese Central Bank and the Central Bank of Nigeria. The renewal of the agreement comes as Nigeria faces a significant depreciation of its currency, the naira, in the context of the liberalization of the exchange rate, following the economic reforms undertaken by President Tinubu.
Reducing pressure on Nigeria’s dollar reserves
According to data from the Central Bank of Nigeria, in the third quarter of 2024, the average exchange rate of the naira depreciated by 14.62%, reaching 1,588.64 naira per dollar from 1,385.96 naira per dollar in the quarter. previous. However, Nigeria’s foreign exchange reserves rebounded from $34.76 billion in the second quarter to $39.29 billion at the end of September 2024. This is equivalent to about 8.91 months of imports of goods and services or 13.34 months for goods only, according to monetary authorities’ estimates.
By facilitating access to the yuan, this agreement could help reduce pressure on Nigeria’s dollar reserves and strengthen its position in its trade with China.
Nigeria remains one of China’s main trading partners in Africa. The country mainly exports crude oil and agricultural products, while Chinese exports to Nigeria consist mainly of manufactured goods. In 2023, Sino-Nigerian trade amounted to $12.6 billion.
Par AJ.SEditorial Committee
