By Gift Samuel, The Sight News
ABUJA: Nigeria and China recently signed an agreement, to swap their currencies, without involving third party.
This deal, will help the two countries, to avoid the risk of changes in third party currency, which is the US Dollar.
A currency swap, according to quora.com, is an arrangement between two friendly countries, which have regular, substantial or increasing trade, to basically involve in trading in their own local currencies, where both pay for import and export trade, at the pre-determined rates of exchange, without bringing in third country currency like the US Dollars.
The Central Bank of Nigeria (CBN),in a statement on Thursday, May 03, 2018, said that the bilateral currency swap agreement with the People’s Bank of China (PBoC), will protect Nigerian business people from the harsh effects of third currency fluctuations.
The Ag. Director Corporate Communications CBN, Isaac Okorafor, in the statement, revealed that the deal is purely an exchange of currencies and will also make it easier for Chinese manufacturers seeking to buy raw materials from Nigeria, to obtain enough Naira from banks in China to pay for their imports from Nigeria.
A breakdown of the agreement, shows that, the amount involved is ¥15bn/N720bn which is expected to last for a period of three years and can be extended upon mutual concent.
Some benefits these countries stand to gain includes; facilitating bilateral trade and direct investment; safeguarding and enhancing financial market stability in both countries; reducing the risk of charges involved in multiple currency exchanges and also, minimizing the borrowing costs for both parties.
It will also assist both countries, in their foreign exchange reserves management as well as promote broader economic cooperation between the two countries.
Image credit: Newsweek.com