In May 2018, Nigeria and China took a significant step towards deepening their economic ties by establishing a currency-swap framework. The deal, signed by the Central Bank of Nigeria and China’s People’s Bank, was valued at RMB 16 billion (around $2.5 billion). The purpose? To facilitate direct trade settlements in local currencies—Naira and Yuan—reducing reliance on the US dollar.

What does this mean for Nigeria?
Essentially, the currency swap allows Nigerian businesses to buy Chinese goods directly using the Yuan, and vice versa. This arrangement aims to cut costs associated with currency exchange, streamline transactions, and ultimately stabilise Nigeria’s economy by reducing dependence on the US dollar, which currently dominates international trade.

Why is trading in the Yuan important?
China is Nigeria’s largest trading partner, surpassing even the United States. Nigeria exports crude oil, petroleum gases, and minerals to China, while importing manufactured goods like vehicles, electronics, and more. China’s investment has also helped fund significant infrastructure projects in Nigeria, covering renewable energy, smart city development, and other critical sectors.

Vice President Kashim Shettima recently confirmed that Nigeria-China trade hit $22.6 billion in 2023, underscoring the importance of this partnership.

Current Trade Dynamics:
Despite the promising move towards Yuan transactions, recent data from Nigeria’s National Bureau of Statistics (NBS) reveals a persistent reliance on the dollar. In the first quarter of 2025, Nigeria’s imports from China were valued at approximately ₦15.43 trillion (about $36 billion), with the trade imbalance heavily favouring China. While Nigeria’s exports to China remain relatively small—around $252 million—the trade surplus stands at roughly ₦5.17 trillion.

In May 2025 alone, China’s exports to Nigeria reached around $2.24 billion—a 50.9% increase from the previous year. Conversely, Nigeria’s exports to China remained low, highlighting a trade imbalance that favours China’s manufacturing dominance.

Why isn’t the swap deal making a bigger impact?
Despite the potential, the Naira-Yuan swap has yet to significantly challenge the dollar’s dominance. The dollar still trades around ₦1,550 to ₦1,600, with only marginal improvements in the Naira’s value since the deal commenced. Limited liquidity of both Naira and Yuan, infrastructural constraints, and the continued universal acceptance of the US dollar all contribute to this stagnation.

Economic Strategy and Limitations
If Nigeria had fully capitalised on a comparative advantage approach—focusing on sectors where it excels—it could enhance trade efficiency. For example, Nigeria has strong agricultural capacity, while China leads in manufacturing electronics. Redirecting trade in this manner could lead to better resource use and job creation.

However, the reality remains that the trade deal has not yet alleviated Nigeria’s reliance on dollars or eased forex shortages, especially in cross-border transactions. The scarcity of foreign exchange remains a critical challenge, despite efforts by the Central Bank to liberalise the Naira’s trade rates.

The Unfulfilled Promise
If the swap deal had been fully operational and effective, Nigeria might have experienced a reduction in dollar demand. Unfortunately, that isn’t the case, and the Naira continues to weaken. The deteriorating currency value indicates that the swap is not yet serving its intended purpose.

Moreover, Nigeria’s relationship with Western nations, notably the US, remains intertwined and complex. The US is both a key trading partner and a geopolitical rival to China. Therefore, the currency swap might inadvertently affect Nigeria’s broader diplomatic and economic relations.

Challenges and Concerns
Many Nigerian businesses and the organised private sector feel the deal is underutilised—accounting for less than 10% of bilateral trade—and face hurdles such as complicated transaction processes and reports of fraudulent currency exchanges. These issues damage trust, hinder trade, and threaten future cooperation.

What needs to be done?
Experts suggest that Nigeria and China should consider increasing the value and duration of the swap, digitising the exchange process, and empowering commercial banks to facilitate direct Naira-Yuan trades. These steps could significantly improve trade efficiency, cut dependence on the dollar, and support local businesses.

While the Nigeria-China currency swap deal was a strategic move with potential, real-world challenges continue to hamper its success. The promise of easing trade costs, reducing foreign exchange pressure, and boosting Nigeria’s maritime sector remains a hope rather than a reality, at least for now. Tackling infrastructural gaps, building trust, and expanding implementation are critical for this initiative to reach its full potential.