Nigeria-China: 5 Years After, Currency Swap Fails To Stabilize.


As anticipated five years ago, the pressures on the exchange rate and external reserves of Africa’s largest economy have not been reduced by the Nigeria-China currency swap arrangement.

2018 saw the signing of a $2.4 billion bilateral currency swap deal between the People’s Bank of China (PBoC) and the Central Bank of Nigeria (CBN). The exchange was valued 15 billion renminbi, or 720 billion naira.

The agreement was anticipated to lower Nigerian importers’ need for US dollars and, as a result, increase the value of the naira. The agreement was made in order to lower some barriers for Nigerian companies importing products from China and lower the cost of transactions using several currencies.

As a result, the naira/yuan exchange rate has decreased from N48 in 2018 when the agreement was signed to N66.70 against the yuan as of April 6, 2023.

As of April 2023, the naira-dollar exchange rate declined from N305/$ in 2018 to N460.86/$, according to the CBN’s official rate that was posted on its website.

Since its beginning in 2018 to June 2022, the bilateral currency swap arrangement between Nigeria and PBoC has generated N436.67 billion (CNY7.04 billion).

The currency swap deal, which started in July 2018 and was renewed in April 2021 for another three years, according to the CBN.

The naira-renminbi swap strategy, according to Taiwo Oyedele, head of tax and corporate consulting services at PwC Nigeria, was created to avoid using a third currency, especially the US dollar.

“The trade imbalance between Nigeria and China is mostly to blame for the implementation’s up to this point challenges. The relative instability in the value of the naira, along with the fact that we import so much from China, has led to a decrease in our exports, which are far less than our imports, he added.

The most long-term answer, in Oyedele’s opinion, is to increase Nigeria’s exports to China and encourage import substitution for the majority of the imported goods in Nigeria.

During the period of January through December 2022, Nigeria’s total exports to China were worth N352.43 billion, according to figures from the National Bureau of Statistics.

The idea behind the currency swap deal, according to Muda Yusuf, CEO of the Centre for the Promotion of Private Business, was to allow for local payments while making purchases from China.

“First of all, as compared to the volume of trade between us (Nigeria) and China, the entire sum is little. The total sum at stake amounts to roughly $2.4 billion over three years. I don’t believe the annual value of trade between Nigeria and China is less than $20 billion.

“The ‘currency swap’ isn’t large enough to change anything in terms of our trade relations with China,” the author writes. It isn’t powerful enough. When compared to the overall volume of trade, the quantity is modest. The participants in international trade favor a currency that is convertible across borders. Because I might elect to buy anything from the US or the UK or convert to the parallel market rate if I am exporting something to China, I would want to receive dollars.

There hasn’t been much of an impact, according to Uche Uwaleke, a professor of financial markets at Nasarawa State University in Keffi, because the scale of the currency swap with China was not that large.

Nigeria’s total merchandise trade was N11.72 trillion in the fourth quarter of 2022, a decrease of 4.52 percent from Q3’s value and a marginal increase of 0.13 percent from Q4’s value in 2021.

The value of export commerce was N6.35 trillion, up 7.17 percent from the previous quarter’s value and 10.28 percent from the same period the previous year. Moreover, in Q4 2022, exports made up 54.25 percent of all trade.

Nigeria’s overall goods trade in the fourth quarter of 2022 was N11.72 trillion, down 4.52 percent from the third quarter and up just 0.13 percent from the fourth quarter of 2021.

Export trade was worth N6.35 trillion, increasing 10.28 percent from the same period last year and 7.17 percent from the prior quarter. Furthermore, exports accounted for 54.25 percent of worldwide commerce in Q4 2022.