China and Nigeria renew currency swap agreement

In a strategic move to deepen economic ties and enhance bilateral trade, Nigeria and China have renewed their currency swap agreement valued at 15 billion Yuan ($2 billion). The People’s Bank of China (PBOC) confirmed the extension in a statement, announcing that the arrangement will remain in effect for another three years, with options for renewal upon mutual agreement.

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

The renewed pact facilitates the direct exchange of the Chinese Yuan and Nigerian Naira, sidestepping the need for US dollars and reducing the costs associated with trade transactions between the two nations.

Initially signed in June 2018, the currency swap facility was established to alleviate liquidity challenges faced by businesses in both countries and streamline trade using their respective national currencies. The deal originally allowed for the exchange of up to 15 billion Yuan (CNY) for 720 billion Naira (NGN), translating to $2.5 billion at an exchange rate of NGN305 to $1.

By eliminating the necessity for US dollars as an intermediary, the agreement simplifies cross-border transactions and enhances market efficiency. Nigerian businesses trading in China and Chinese enterprises operating in Nigeria will benefit from easier access to liquidity in naira and yuan, facilitating seamless operations and fostering growth.

The agreement enables the central banks of both countries to inject liquidity into their financial systems through bi-weekly auctions, promoting the sale, purchase, and repurchase of naira and yuan. This mechanism is designed to support trade, bolster bilateral investments, and encourage financial stability.

Economic analysts highlight that the renewal of this swap deal underscores the strengthening partnership between China and Nigeria. By prioritizing direct currency exchanges, both nations aim to reduce their reliance on the dollar and boost trade flows, contributing to economic growth and sustainable development.

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