Introduction

Nigeria and China have strengthened their economic ties by entering into a currency swap agreement aimed at reducing reliance on the US dollar for trade and financial transactions. The agreement enables both countries to settle trade in their local currencies—the naira and the yuan—thereby simplifying transactions, lowering foreign exchange risks, and enhancing financial cooperation. This initiative aligns with a global trend where countries are seeking to diversify away from dollar dependence. The following sections detail the historical background of the pact, key figures, the progress on digital currency exchanges, and the pledges both nations have made to further this collaboration.

Historical Context of the Agreement

The initial currency swap deal between Nigeria and China was signed in 2018, marking a pivotal moment in their economic relationship. The agreement was valued at 15 billion yuan (approximately $2.5 billion or 720 billion naira at the time). It was designed to facilitate seamless trade by allowing businesses in both countries to exchange currencies directly without needing to convert through the US dollar. The deal was renewed in 2021, further reinforcing the commitment to deepening financial integration between the two nations.

Trade Figures and Impact

Nigeria’s trade with China has grown consistently, with total bilateral trade surpassing $19 billion in 2022. China accounts for nearly 25% of Nigeria’s imports, making it Nigeria’s largest trading partner. Following the currency swap, it is estimated that by 2024, over 30% of transactions between Nigeria and China will be conducted using the yuan instead of the US dollar. The agreement has also enhanced Nigeria’s liquidity position, enabling businesses to access yuan directly from the Central Bank of Nigeria (CBN), thereby reducing pressures on the foreign exchange market.

Developments in Digital Currency Exchange

In addition to the swap agreement, Nigeria and China are exploring the use of digital currencies to further streamline trade. China’s digital yuan (e-CNY) and Nigeria’s eNaira, introduced in 2021, are at the forefront of these efforts. Discussions are underway to establish a digital exchange platform that facilitates direct conversion between the naira and yuan. This system could reduce transaction costs by up to 5% and cut settlement times by half. Both countries are also considering blockchain technologies and digital wallets to ensure secure and efficient cross-border payments.

Pledges and Commitments

Both nations have made significant pledges to strengthen their financial collaboration. Nigeria has pledged to increase its yuan holdings within its foreign reserves, aiming to stabilize its economy and reduce exposure to dollar fluctuations. China has committed to supporting capacity building in Nigeria, offering technical assistance for digital finance infrastructure, and helping local businesses understand and adopt the yuan for trade. Both governments have also expressed interest in using central bank digital currencies (CBDCs) for cross-border transactions in the near future.

Conclusion

The partnership between Nigeria and China reflects a deliberate shift toward reducing dollar dependency in global trade. By deepening their currency swap agreement, exploring digital currency exchange mechanisms, and pledging mutual support, both countries are laying the foundation for a more resilient and diversified economic relationship. These efforts could reshape trade dynamics across Africa and Asia, encouraging other nations to consider similar agreements as part of a broader de-dollarization strategy.