China and Nigeria have renewed a currency swap agreement worth 15 billion yuan ($2 billion) to boost trade and investment between the two countries.
Confirming this in a statement on Friday, the People’s Bank of China (PBOC) noted that the facility will help strengthen financial cooperation and expand the use of the two currencies.
“The agreement is valid for three years and can be renewed upon mutual consent,” Bloomberg quoted the bank as saying.
With this deal, the direct exchange of the Chinese yuan and Nigerian naira will be seamless, providing an alternative to the reliance on the US dollar and reducing transaction costs in trade between the two nations.
The currency swap which was originally signed in 2018, was aimed at addressing liquidity challenges for businesses in both countries and facilitating trade in their respective currencies.
At the time, it allowed for the exchange of up to 15 billion Chinese yuan (CNY) for 720 billion Nigerian naira (NGN), equivalent to $2.5 billion at an exchange rate of NGN305 to $1.
From the agreement, the swap is meant to rationalize trade transactions by getting rid of the need for US dollars as an intermediary currency.
The deal provides liquidity in naira for Chinese businesses operating in Nigeria and in yuan for Nigerian firms trading in China. The system is meant to facilitate seamless transactions, support bilateral investments, and enhance market efficiency.
It would also assist both countries in their foreign exchange reserves management, enhance financial stability, and promote broader economic cooperation between the two countries.
The agreement means that the central banks of both countries can inject liquidity into their respective financial systems via bi-weekly auctions.
