China, Nigeria Extend $2 Billion Currency Swap to Boost Trade, Reduce Dollar Reliance
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China and Nigeria have renewed their three-year, 15 billion yuan ($2 billion) currency swap arrangement, aiming to deepen financial cooperation and reduce reliance on the US dollar for bilateral transactions.
The People's Bank of China, as reported by Bloomberg, announced the renewal on Friday, stating that the currency swap facility will "strengthen financial cooperation and expand the use of the two currencies." The Central Bank of Nigeria has yet to comment on the extension.
The two countries initially established the currency swap deal in April 2018, aiming to alleviate dollar shortages in Nigeria. China's position as Nigeria's largest trading partner, with $11.2 billion in goods and services imported from China and $2.4 billion in exports to China in 2023, underscores the significance of this financial arrangement.
The currency swap is designed to provide naira liquidity to Chinese businesses and yuan liquidity to Nigerian businesses, reducing their dependence on the US dollar for transactions. This move comes amid broader efforts by several countries to reduce their reliance on the US dollar, including within the BRICS bloc, where China is a member and Nigeria aspires to join.
US President-elect Donald Trump has expressed concern over the potential for alternative currencies to challenge the dollar's dominance, threatening steep trade tariffs against BRICS members if they "back any other Currency to replace the mighty U.S. Dollar."
Nigeria has experienced significant dollar shortages in recent years, a situation partially alleviated by the central bank's move last year to allow the naira to trade more freely against the dollar. However, the naira has depreciated significantly since then, losing 70% of its value. The currency swap facility is expected to further reduce local demand for dollars, potentially supporting the naira.