In April 2018, Nigeria and China entered into a multibillion dollar deal in hopes of improving currency liquidity between the two nations and reducing dependence on the American dollar. The currency swap, worth about $2.5 billion in US dollars, has been in the works since 2016. Nigerian officials anticipate that this transaction will help further expand Nigeria’s booming economy.
Until this Sino-African currency deal was in-effect, Nigerian business owners had to convert their native currency, the naira, to US dollars, then convert the dollars to the Chinese Yuan. This tedious process forced Nigerians to pay twice for currency conversions and left them vulnerable to unscrupulous middlemen and currency speculators. Nigerians were also doubly exposed to currency fluctuations.
After the US, China is Nigeria’s leading trading partner. Trade volumes between Nigeria and China amounted to over $9 billion in 2017. Currently, Nigeria is running a massive trade deficit as it imports over $7 billion in Chinese goods and exports only $1.6 billion in products. The currency swap eliminates the need to convert native currencies to American dollars, thereby alleviating pressure on Nigerian and Chinese foreign reserves and the US dollar.
With this deal — essentially an exchange of the countries’ currencies — Chinese businesses looking to purchase raw materials from the African nation will enjoy easier access to sufficient naira from Chinese banks to buy Nigerian imports. Additionally, the swap now shields Nigerian businesses from the disadvantageous effects of third currency fluctuations. Hopefully, this will become a means to stimulate the local economy and trading as we work towards a more sustainable future.
Nigerian business owners will now enjoy tremendous cost savings now that they can obtain the Chinese Yuan more directly. The currency deal eliminates the cost of buying U.S. dollars. It also helps streamline Nigerian-Chinese transactions, saving time and money that had to be spent on purchasing U.S. dollars that were only needed to convert to the Yuan. Furthermore, the deal is expected to lead to a decline in the price of the dollar due to reduced demand for it, making the dollar more accessible for businesses that truly need it.
The exchange will save Nigerians at least N73 for every N360 they spend. This move will also lead to lower prices for commodities and increased disposable income. The currency exchange will be valid until 2021 and is renewable with the consent of Nigeria and China. Ultimately, the deal will engender greater mutually profitable trading between both countries.