Nigeria’s currency swap deal with China: Gains & pitfalls

China . Yuan currency

Some divided stakeholders in Nigeria say the policy may ease business and stifle local firms . . .

The Federal Government’s recent currency swap deal with China holds both bright prospects and grave implications for Nigeria even as the Naira inched up against the Dollar at the weekend at the parallel market . . .

During his official trip to the world’s second biggest economy, President Muhammadu Buhari struck a Naira and Yuan swap deal, scripted to ease trade transactions between both countries, devoid of current exchange challenges with the United State dollar.

China . Bank of China

Bank of China

CBN

Central Bank of Nigeria

Besides, the deal, according to Presidency sources, has the potential of shoring up the value of the nation’s currency, in the foreign exchange market, through a concomitant emergent bidding scheme, with strategic reduced demand for dollar and other major currencies, other than the yuan.

NairaChina . Yuan currency

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The currency swap deal consists of an agreement between two central banks, at least one of which must be an international currency issuer, to swap their currencies. The central banks party to the swap transaction can lend the proceeds of the swap, against collaterals they deem adequate, to the commercial banks within their jurisdiction, to provide them with temporary liquidity in a foreign currency.

But pessimists pointed out that the swap deal was not consummated between the two countries’ apex banks but between Central Bank of Nigeria (CBN) and China’s ICBC- the world’s largest lender by total assets and market capitalisation. “While this may not affect the objectives of the swap deal in any way, it raises some fundamental sovereign issues,” according to an analyst who spoke on condition of anonymity.

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MBR | Extracts from TheGuardian
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Nigeria’s currency swap deal with China: Gains & pitfalls