Recently, the CBN signed a 3-year $2.4bn bilateral currency swap deal with the People’s Bank of China (PBoC). This deal, like a typical currency swap deal, will bypass the use of the U.S. dollar and facilitate the direct exchange of the Naira and the Renminbi in relation to trade between Nigeria and China. Beyond enhancing currency market stability, this move would also further facilitate trade and investments between both countries.
On the flipside, the relationship between China and Nigeria appears lopsided, and broadly in favor of China. As at 2017, Nigeria’s imports from China stood at N1.8tn, representing 18.7% total imports while exports to China stood at N220.6bn, a mere 1.6% of total exports according to the NBS. Although the value of the deal places a cap on the volume of transactions, without the existence of proper measures by the CBN, the deal could widen the already large deficit while ultimately, accelerating China’s vision to internationalize its currency.
The currency swap agreement is clearly a strategic move by the CBN to boost FX stability, with China as Nigeria’s largest import partner over the last five years. However, we place caution on over-reliance on temporary measures and emphasize the need for bold and export-driven reforms to boost Nigeria’s trade position and provide a more stable support for the Naira in the long term.
UNITED CAPITAL NIGERIA