A currency swap valued at approximately US$2.5 billion between Nigeria and China will help to boost the African country's foreign reserves over the next few weeks according to financial experts.
Rislanudeen Mohammed, a former managing director at Nigeria’s Unity Bank said, “in the context of minimizing concentration risk of having our foreign exchange denominated in the United States dollar alone, this is a positive development. Secondly, in view of our huge imports from China, this agreement will help in reducing the time as well as transaction costs by eliminating third-party currency deals.”
He emphasized that “reduced transaction costs will make goods imported from China cheaper to both importers and ultimately Nigerian consumer. This may negatively impact on our diversification efforts by making Chinese imports cheaper. However, there is no impact on the economy as far as the balance sheet of the central bank is concerned.”
Chijioke Ekechukwu, former director-general at the Abuja Chamber of Commerce and Industry, affirmed that the Nigerian-Chinese currency swap agreement “is a win-win situation for the two countries as it will foster seamless business relationships between them. The exchange rate volatility will be reduced with this agreement, especially at the point of repayment. Country or sovereign risk will also be mitigated by this agreement.”
The US$2.5 billion Bilateral Currency Swap Agreement between Nigeria and China was signed with the People’s Bank of China (PBOC) on April 27, 2018, and will take place over the next three years.
The swap, totaling 15 billion Chinese yuan for 720 billion Nigerian nairas, or vice versa, aims to facilitate bilateral trade and investment and can be extended by mutual consent.