Bilateral Currency Swap Agreement Between Nigeria and China
With bilateral trade volume growth of 30% between Nigeria and China between January 2017 and November 2017, there was a good argument for the two countries to take measures to enhance their trade relationship through a Currency Swap arrangement.
The growth in actual terms – about $12.3 billion necessitated the move to facilitate the provision of adequate local currency liquidity for trade between the two countries without recourse to a third-party currency i.e. the US Dollar.
The Swap deal is, in part, designed to make the Naira readily available and accessible to Chinese businesses and, in reciprocity, guarantee access to the Renminbi (RMB) for their Nigerian trading partners. Being moderated by the Central Bank of Nigeria, it will ensure that 15 billion Chinese Yuan is exchanged for N720 billion, over a three-year period. As part of its operational dynamics, bi-weekly bidding sessions in Renminbi have been instituted to accommodate only trade-backed transactions.
While this bilateral agreement could, among other benefits, help promote access to liquidity for trade between the two countries and enable indigenous manufacturers source machinery and raw materials more easily, it is not without potential challenges which, if not well managed, could prove counter-productive for the Nigerian economy.
What then are the merits and demerits associated with this initiative? Should Nigerians be concerned about this agreement? What steps could the Federal Government of Nigeria adopt to address the potential pitfalls that may emerge in the course of executing the agreement? How should Nigeria tackle the trade imbalance between the two countries?
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