Nigerian economic experts say a five-year-old currency swap agreement with China has not eased pressure on the Nigerian currency. According to one expert, the magnitude of the trade imbalance between Nigeria and China has hampered the implementation of the swap agreement
easing pressure on the naira
A currency swap agreement with China signed five years ago has failed to ease pressure on the naira, according to a Nigerian economic expert. The agreement, signed between the Central Bank of Nigeria (CBN) and the People’s Bank of China (PBOC), was also intended to reduce pressure on Nigeria’s external reserves and ensure foreign exchange stability.
However, since the signing of the 2018 swap agreement, the Nigerian currency has depreciated against the dollar from N305:$1 in 2018 to over N460:$1 in the first week of April 2023. Against the yuan, the Nigerian currency depreciated from an exchange rate of N48:CNY1 in 2018 to N66.70:CNY1 on April 6, 2023. In the parallel foreign exchange market, which is an important source of greenbacks for many Nigerian businesses and individuals, the naira/dollar exchange rate was reported to be over N730:$1
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The reports of failed currency swap agreements come at a time when several countries are trying or about to enter into similar agreements with China.
As to why a currency swap agreement with China does not seem to be stopping the naira from falling, Taiwo Oyedele, head of tax and corporate advisory services for PWC Nigeria, pointed to the trade imbalance between the two countries.
“We are facing difficulties in implementation because of the trade imbalance between Nigeria and China. While we import a lot of things from China, we don’t export as much, and in addition to the relative instability in the value of the naira, our exports are actually on the decline,” Oyedele said, according to Oyedele.
According to Oyedele, Nigeria can remedy this situation by using locally produced alternatives to imports.
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