Nigeria-China Currency Swap at Risk as Trade Imbalance Widens — CBN Warns

The Central Bank of Nigeria (CBN) has expressed concern that the persistent trade imbalance between Nigeria and China is threatening the effectiveness of the Nigeria-China currency swap agreement. Speaking at a forum hosted by the Maritime Reporters Association of Nigeria (MARAN), CBN Governor Dr. Olayemi Cardoso, represented by his adviser, noted that while the swap has facilitated imports from China, Nigeria’s limited exports—mainly unprocessed raw materials—are undermining the intended benefits. In 2023, Nigeria exported just $2.51 billion worth of goods to China, compared to about $20 billion in imports.

Cardoso stressed that for Nigeria to fully benefit from the swap deal, it must shift from raw material exports to value-added goods and strengthen its manufacturing sector. He emphasized the importance of curbing imports of products that can be produced locally and encouraged the use of the swap deal to enhance infrastructure and industrial capacity. This, he noted, would help reduce the heavy reliance on imports and contribute to a more balanced trade relationship with China.

Despite the imbalance, Cardoso highlighted several gains from the swap deal, such as reduced transaction costs, decreased reliance on the U.S. dollar, and more efficient currency conversions. He revealed that dollar dependency had already dropped by 39% thanks to the agreement, which now allows Nigerian businesses to trade directly in naira and yuan. The swap also supports Nigeria’s foreign exchange reserves by freeing up more U.S. dollars for other uses and simplifies cross-border payments.

Additionally, the swap deal has improved Nigeria’s image as a trading partner, enhanced foreign investor confidence, and increased access to infrastructure financing from China. Nigerian banks can now issue renminbi Letters of Credit, while Chinese firms operating in Nigeria can transact in naira. Cardoso also pointed out that the agreement encourages stronger regulatory cooperation with China in areas like money laundering prevention and financial transparency. MARAN’s president, Godfrey Bivbere, called for critical scrutiny of the deal amid Nigeria’s rising debt to China and ongoing economic concerns.

Source: The sun