Forex traders have attributed the recent exchange rate stability to the success of Nigeria’s currency swap agreement with Chinese traders now collecting naira for its currency, the yuan, instead of dollars.
They also identified P2P (Peer-to-Peer) foreign currency trade as one of the factors that is contributing to the stability of the naira.
Peer-to-peer foreign currency exchanges provide users or individuals with an online platform where they can exchange currencies with one another, cutting off intermediaries like banks, foreign exchange services, and other institutions.
P2P exchanges provide users with cost savings and convenience
They stated that these factors are helping to put less pressure on the naira.
Nigeria and China first signed the currency swap agreement in April 2018 for a period of three years amid persistent dollar shortages across the country due to excessive demand for the greenback.
China is Nigeria’s biggest trading partner ahead of the US. Nigeria imported N14.14 trillion worth of goods and services from China and exported goods worth over N3 trillion in 2024.
The deal allows both the Central Bank of Nigeria (CBN) and the People’s Bank of China (PBoC), which are executing the agreement on behalf of their respective countries, to swap a maximum amount of $2.5 billion.
As part of the regulation then released by Nigeria’s apex bank, the CBN, and PBoC were expected to make available liquidity in their respective currencies for the facilitation and promotion of trade and investments between the two countries through the purchase, sale, and subsequent repurchase and resale of the Chinese Yuan against the Naira and vice versa.
The currency deal was designed to provide naira liquidity to Chinese businesses and yuan liquidity to Nigerian businesses, while reducing their dependence on the dollar as a basis for transactions.
Nigeria has reportedly renewed a currency swap deal worth $2 billion with China in a bid to strengthen bilateral trade and investment between both countries.
In December 2024, the Federal Government was reported to have renewed the currency swap deal worth about $2 billion with China in a bid to strengthen bilateral trade and investment between both countries.
Relative stability of the exchange rate
In an exclusive chat with Nairametrics, the President of the Association of Bureau De Change Operators of Nigeria (ABCON), Aminu Gwadebe, highlighted the relative stability of the exchange rate recently and attributed it to some developments in the forex market.
He said, ‘’The Chinese are now collecting Naira for Yuan, doing P2P. Go to any mining factory and you will see a Chinese man in Nigeria. Is it double? The two things are working on that, which the CBN is not doing.
‘’I told you of the Chinese, mining, Yuan, Naira. Then is it P2P? These two factors are working right now. There is a lot of liquidity in the market.’’
On the Chinese swap deal putting less pressure on the naira, the ABCON boss said, ‘’Definitely now. It is making it now. They are collecting Naira for yuan, give you Naira and go to China. That deal has even expired. That one, you can do it even officially. But now, it has even expired.
‘’I think they are trying to renew it somehow. I don’t even follow it because I know it is already a failure. I don’t even follow it, honestly.’’
No Need For Dollars
Gwadebe further pointed out that Nigerians who are buying goods from China do not need dollars, as all they need is to buy yuan.
He said, ‘’If you go to China and if a Chinese man is importing, I mean a Nigerian importing from China, all he needs is yuan to settle his affairs. You don’t even need dollars. Why are you going into third currencies? Buy Naira, dollar, dollar, yuan. Why am I doing that? Does that make sense to me as a businessman?
‘’Does that make sense for me now? Yeah, it doesn’t make sense to me. Why am I converting, I mean, converting from Naira dollar? No, no, not making sense. You collect my Naira for yuan in China, then what am I talking about? Well, no. I don’t go through dollars.
‘’Somebody was telling me in China, there is like a Nigerian market. You will see how they collect Naira, sell dollars. Also Yuan.’’
Making his own contribution, another currency trader, Yusuf, noted that although the swap agreement between Nigeria and China has some influence on the exchange rate, the impact may not be strong in the day-to-day market operations.
He pointed out that the reality is that most Nigerians still prefer the US dollar because it is more widely accepted globally.
He said, ‘’Yes, the swap agreement between Nigeria and China has some influence on the foreign exchange, but the effect is not that strong in day-to-day market operations. The main idea behind the swap was to reduce dependence on the U.S. dollar for trade between Nigeria and China. So, for businesses importing goods from China, instead of looking for scarce dollars, they can settle transactions in yuan (RMB).
‘’But here’s the thing: in reality, many Nigerian traders still prefer USD because it is more widely accepted globally. Even Chinese suppliers often ask for dollars, not naira or yuan. So, the swap is helpful, but on the ground, its impact on the black market is very small. The dollar is still what people prefer.’’
On person-to-person transactions, Yusuf said that the swap deal has almost no impact on everyday transactions like school fees abroad, medical bills, remittances, or even sending money to family outside Nigeria.
He noted that you can’t easily walk into a BDC and buy yuan like you do with dollars, pounds, or euros. ‘’Even if yuan is available, it’s not liquid in the street market,’’ he said.
– What You Should Know
The currency swap deal between Nigeria and China is significant as it was to allow trading between the two countries to be done directly in their local currencies without any need for the dollar.
This development was to improve bilateral trade between the two countries and engender foreign investment flows and economic cooperation beneficial to both parties.
The significant cut in dollar demand by firms and investors doing business across the two countries will help protect their financial markets and boost their respective foreign reserves.
However, there are still concerns over the ability of the currency swap agreement to fully address the challenge of dollar demand by importers, since imports from China are reported to account for only 20% of Nigeria’s annual total imports.
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