Nigeria and China have signed a currency-swap agreement worth $2.5 billion to boost commercial ties and reduce the need to use dollar in their bilateral trade. The pact was the result of over two years of negotiations between the apex banks of both countries.
Governor of Central Bank of Nigeria, Mr. Godwin Emefiele, led CBN officials while Governor of People’s Bank of China, PBoC, Dr. Yi Gang, led the Chinese team at the official signing ceremony in Beijing, China, last Friday.
The transaction is aimed at providing adequate local currency liquidity for Nigerian and Chinese industrialists and other businesses in order to reduce their difficulties in the search for a third currency.
CBN’s Acting Director, Corporate Communications, Isaac Okorafor, in a statement, explained that Chinese businesses would get naira liquidity and Nigerian businesses, RMB liquidity under the agreement, adding that this would improve the speed, convenience and volume of transactions between both countries.
The statement read, “the transaction, which is valued at Renminbi (RMB) 16 billion, or the equivalent of about $2.5 billion, is aimed at providing adequate local currency liquidity to Nigerian and Chinese industrialists and other businesses thereby reducing the difficulties encountered in the search for third currencies.
“Among other benefits, this agreement will provide Naira liquidity to Chinese businesses and provide RMB liquidity to Nigerian businesses respectively, thereby improving the speed, convenience and volume of transactions between the two countries. It will also assist both countries in their foreign exchange reserves management, enhance financial stability and promote broader economic cooperation between the two countries.
“With the operationalisation of this agreement, it will be easier for most Nigerian manufacturers, especially small and medium enterprises (SMEs) and cottage industries in manufacturing and export businesses to import raw materials, spare-parts and simple machinery to undertake their businesses by taking advantage of available RMB liquidity from Nigerian banks without being exposed to the difficulties of seeking other scarce foreign currencies.
“The deal, which is purely an exchange of currencies, will also make it easier for Chinese manufacturers seeking to buy raw materials from Nigeria to obtain enough Naira from banks in China to pay for their imports from Nigeria.
“Indeed, the deal will protect Nigerian business people from the harsh effects of third currency fluctuations. With this, Nigeria becomes the third African country to have such an agreement in place with PBoC.
“Both the Nigerian and Chinese officials expressed delight at the conclusion and signing of the agreement and expressed the hope that it would boost mutually beneficial business transactions between Nigeria and the Peoples Republic of China.”
China is Nigeria’s second-biggest trading partner after the U.S., with volumes between the two totaling $9.2 billion in 2017, according to data compiled by Bloomberg. Nigeria runs a deficit, importing $7.6 billion of goods including textiles and machinery from China and exporting just $1.6 billion, mainly oil and gas.
Since 2014, the world market has recognised the Yuan as a likely global reserve currency, a replacement for the dollar, which has led countries like Ghana, South Africa and Zimbabwe to integrate the renminbi (Yuan) into their financial markets.