China and Nigeria have renewed a currency swap agreement worth 15 billion yuan (approximately $2 billion) aimed at enhancing trade and investment between the two countries. In a statement released on Friday, the People’s Bank of China (PBOC) confirmed that this agreement will strengthen financial cooperation and increase the use of both currencies.
The agreement is valid for three years and can be renewed by mutual consent, according to Bloomberg. This deal will facilitate the direct exchange of the Chinese yuan and the Nigerian naira, offering an alternative to the reliance on the US dollar while reducing transaction costs in trade between the two nations. Originally signed in 2018, the currency swap was designed to address liquidity challenges for businesses in both countries and promote trade in their respective currencies.
At that 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. The purpose of the agreement is to streamline trade transactions by eliminating the need for US dollars as an intermediary currency. It provides liquidity in naira for Chinese businesses operating in Nigeria and in yuan for Nigerian firms trading in China. This system is intended to facilitate seamless transactions, support bilateral investments, and enhance market efficiency.
Additionally, the agreement will assist both countries in managing their foreign exchange reserves, improve financial stability, and promote broader economic cooperation. The agreement allows the central banks of both nations to inject liquidity into their respective financial systems through bi-weekly auctions.
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