• The five-year currency swap agreement between Nigeria and China has not eased the pressure on the Nigerian naira.
• Implementation of the agreement is hindered by Nigeria’s trade imbalance with China.
• Other countries are seeking similar agreements with China in order to reduce their own currency pressures.
Currency Swap Agreement Between Nigeria and China
The Central Bank of Nigeria (CBN) and the People’s Bank of China (PBOC) signed a five-year-old currency swap agreement back in 2018, intended to reduce pressure on Nigeria’s external reserves and ensure foreign exchange stability.
Failure to Ease Pressure on the Naira
Despite this arrangement, experts have stated that it has not been successful in easing pressure against the naira, as its value versus the dollar has dropped from N305:$1 in 2018 to over N460:$1 in April 2023, while against the yuan it has slid from a rate of N48:CNY1 to 66.70:CNY1. On the foreign exchange parallel market, an important source for Nigerian businesses and individuals, reports show that its value stands at over N730:$1.
Trade Imbalance With China
Taiwo Oyedele – head of tax and corporate advisory services at PWC Nigeria – explained why this arrangement is failing by pointing out that it is hindered by a trade imbalance between both nations due to how much they import from each other compared to what they export. He suggested substituting or promoting locally produced alternatives as a way to reverse this situation.
Similar Agreements with Other Countries
It was reported that several countries have either established or are looking into establishing similar agreements with China too, likely for similar reasons such as reducing their own currency pressures.
Conclusion
While there are plans for future efforts towards improving economic relations between these two nations, it appears clear that more needs to be done if any tangible results are going to be seen in terms of easing pressure on their respective currencies.
