As explained by AFRINVEST

Last week, Central Bank of Nigeria (CBN) and People’s Bank of China (PBoC) announced the conclusion of a bilateral currency swap agreement between Nigeria and China valued at Renminbi (RMB) 15.0bn or N720.0bn.

The 3-year Agreement, signed by respective Central bank Governors on Friday, 27th April 2018, followed a 2-year long negotiation process between the two countries which began during President Muhammadu Buhari’s visit to China in April 2016.

Consequent on the opening of the “Swap Line”, both central banks would exchange a stock of their local currencies (RMB 15.0bn/N720.0bn), which could either be extended by mutual consent at expiration in 2021 or reversed.

We view the agreement as a positive development, given the FCY liquidity squeeze Nigeria frequently experiences and the strong trade & investment ties between the two countries.

According to the trade statistics by the National Bureau of Statistics (NBS), merchandise trade between China and Nigeria reached a record high of N2.0tn in 2017 (8.7% of total Merchandise trade), thus making China Nigeria’s 3rd largest trading partner after India and the United States (accounting for 12.5% and 10.8% of merchandise trade respectively).


However, the Balance of Trade is heavily tilted in favour of China; imports from China in 2017 (N1.8tn) was 8.1x Nigeria’s export (N220.6bn) and accounts for 20.9% of total imports in the last five years. This is clearly suggestive of Nigeria’s growing dependence on China, much like most of the rest of the world, for manufactured products and industrial inputs, reinforcing the importance of this currency swap agreement for Nigeria’s import dependent Manufacturing and Trade sectors which jointly contribute 27.8% to GDP.

Given the established strategic importance of China as a major trade partner, the bilateral currency swap agreement will be beneficial to the Nigerian economy in several ways.

First, it would reduce currency transaction cost for importers and ease FX liquidity pressures in periods of FX rate volatility and/or scarcity. The implementation of this currency swap will also enhance financial stability and external reserves management by reducing the volume of FX interventions in the local market needed to fulfil imports demand.

Lastly, this agreement could serve as a risk management and unconventional monetary policy tool as probable losses resulting from transactions affected by volatility in the local currency could be hedged and minimized


As an unconventional monetary policy tool, in managing third currencies pressures and liquidity, the importance of the bilateral currency swap agreement between Nigeria and China cannot be neglected.

Whilst we are excited by the symbolism of this agreement, we also note that the impact on the economy will be limited by the relatively small size of the Swap Line which could barely cover 40.0% of Nigeria’s Chinese import in a single year.

Furthermore, a key downside risk to the agreement is that the ease of transaction with a highly competitive country like China could worsen Nigeria’s trade balance and weaken domestic manufacturing capacity.

We think this concern is justified, particularly in a period of heightened trade scepticism. Yet, it also emphasizes the need to deepen domestic policies on improving competitiveness.

https://www.businesspost.ng/2018/05/07/gains-of-bilateral-currency-swap-deal-between-nigeria-china/

Deductions

*CENTRAL BANK OF NIGERIA HAVE FINALLY SIGNED THE CURRENCY SWAP DEAL*

*IT'S WORTH READING...*

*IN CASE YOU DON'T UNDERSTAND.*

*I know Most of You don't know the meaning of Nigeria dollars, yuan swap with China.. And why American government is desperately smoothing the relationship with Nigeria.*

*Let's me get it clearer to you before the enemies of Progress twist it for you.*

*Soon you will be buying that techno phone you bought at N80,000 for N12,000.*

*This is why even the oppositions, haven't say anything about it.*

*The Central Bank of Nigeria have finally signed the currency swap deal we have been expecting for the past 2 years into existence with the Chinese government.*

*The importance of this is that since almost 70% of the goods we import come from China and Asia and 12% America why must we use Dollars to transact with China? from now instead of using dollars at N350 to 1dollar to import those goods, we can now buy Yuan at 47 naira to 1 Yuan and import those stuffs directly.*

*Instead of buying these goods in dollars in China, we will now buy them in Yuan which is 5times cheaper than dollars.*

*As usual, another giant stride which are Print Media, Electronic Media and Nigerian looters will not report or allow you to understand this victory over supremacy of dollars in our daily lives and economic activities.*

*Congratulations Nigerians

What you said is a large part in exaggeration

The prices won't reduce as such it will just make it easier to access the yaun for China deals strictly

And yes a price reduction but not to the 300% you stated

No one will buy a N47009 tecno phone at N12000 because of this that is a clear lie

This will only affect business importation and trade between Nigeria and China and even benefits China more because in the past they had to pay us in dollars for whatever trades they had with us now they also gain in cutting that off and we also loose in the dollar forex profits

All in all it's a good deal but please do not exaggerate as paid goons are known to do

And lastly America was not romanticizing Nigeria why would they? After all like you said America Nigeria trade is less than 12% what exactly do they benefit from this relationship?

America knows Nigeria is central in Africa with very porous birders hence there is eveidence of ISiIS spomsorring terrorist training camps for Boko Haram, and some North African terrorist groups with string ties to Al Qaeda in Nigeria so it makes sense to keep the relationship with Nigeria strong so the Nigerians government can be induced to help fight this . But we all know how incompetent the government and the USA knows this too

Trust me Americas interest in Nigeria is solely for security reasons , otherwise Africa will become the new continental home of Al Qaeda

Stop being so childish and look beyond your anti Western and anti Isreal sentiments

Basically it will reduce our over dependence on the dollar which has ripple effects especially the masses and it will help the liquidity issues faced by Nigerian traders and Chinese manufacturers thus bringing down the cost of production, promotes ease in doing business and reducing the prices of products