The Nigerian Naira (NGN) has been gaining strength against the US dollar recently, thanks to a currency swap agreement between Nigeria and China. It's worth noting that the naira gains ground; Chinese traders shift from dollar to naira. Chinese traders are now accepting naira in place of dollars for transactions with Nigerian customers, according to forex traders.
In fact, Bayo Onanuga, Special Adviser to President Bola Tinubu on Information and Strategy, says this trend stems from Nigeria's currency swap agreement with China and the thriving peer-to-peer forex market, which together contribute to the recent tranquillity of the naira and help bypass the dollar. This arrangement reduces transaction costs and foreign exchange spreads, saving importers significant amounts of money.
For instance, a fictional Lagos electronics importer saw cost savings drop from approximately N1 - N3 million to N500,000 - N1.5 million on a N50 million order, following NGN - CYN settlement. This has resulted in the relative stability of the exchange rate recently.
What's Driving This Change?
The points listed below have given an edge on what has driven this change.
1. Currency Swap Agreement: Naira Yuan
Nigeria and China renewed a €2 billion (¥15 billion) currency swap in December 2024, originally signed in 2018, to facilitate direct settlement. The agreement that is now in practice has now been made easier. This is a key factor that has driven this change.
How the Naira-Yuan Swap Works in Practice
The Naira-yuan currency swap has been made easy for traders, importers, exporters and businesses to trade without using US dollars as an intermediary. Through this agreement, the Nigerian traders/importers can now pay through local banks in naira without converting to US dollars in order to source their goods from China.
The local banks now have access to yuan liquidity under this agreement between the Central Bank of Nigeria (CBN) and the People's Bank of China (PBoC). The exporter now receives their liquidity directly in yuan after both central banks have agreed on the transaction rate later.
The arrangement has been able to eliminate the need for multiple conversions, which has often increased the cost of exchange rate spreads and bank charges even in the black market setting. This has now effectively removed the USD as a middleman, reduced exposure to volatility and lowered FX risks in businesses.
2. Cost of Savings and Market Impact
The cost effects of the Naira-Yuan exchange rate spreads are the significant reduction in transactions for Nigerian importers just by eliminating the multiple conversions from Naira to dollars before payments to the Chinese market with fewer intermediary charges and faster settlement, improved cash flow, particularly for those operating on thin margins, and eased forex market participants' pressure, contributing to calmer trading conditions and supporting the recent Naira's stability.
3. Role of Peer-to-Peer (P2P) Forex Markets
Peer-to-peer forex markets have played a remarkable role in Nigeria’s foreign exchange rate system by allowing individuals and businesses to exchange currencies directly at competitive and market-driven rates and by reducing dependence on intermediaries acting as middlemen.
These platforms help narrow exchange-rate spreads and improve access to liquidity. When in combined efforts, P2P trading supports smoother forex flows, limits excessive speculation, and contributes to improved confidence and relative stability in today's naira market. In recent times, it has assisted with the Naira-Yuan currency swap.
4. Implication for the Naira and FX stability
The increased uptake, supported by the naira–yuan currency swap and improved forex market mechanisms, has helped reduce strong demand for the US dollar. As pressure on limited dollar supply eases, exchange-rate volatility has moderated, contributing to the naira’s recent stability. Improved liquidity and clearer price discovery have also strengthened market confidence among traders and businesses.
Subsequently, these gains are largely short- to medium-term and remain sensitive to policies at large, capital inflows, and economic core drivers such as export performance and foreign investment. Take, for instance, Nigerian importers; the system also shortens settlement time and improves access to foreign currency, especially during periods of dollar scarcity, while from the end of Chinese exporters, it ensures smoother trade flows with one of Africa’s largest markets.
Overall, the naira–yuan swap simplifies a cross-border trade, lowers transaction costs, and reduces pressure on Nigeria’s demand for US dollars.
Here are risks and limitations to watch:
In as much as the naira–yuan swap and improved forex market mechanisms offer benefits, several risks remain. In transition to the size of the swap agreement, it is relatively limited to Nigeria’s total import demand; this means that its stabilising effect may be short-term. Over-reliance on China for trade could create vulnerabilities, and any policy inconsistency or delays in implementation might reverse gains.
Additionally, macroeconomic factors—like inflation, capital flows, and export performance—remain critical. Businesses and traders should stay cautious and avoid overestimating the swap’s impact on long-term naira strength.
What this means for businesses and traders is that the shift toward naira-based trade settlements directly benefits importers, SMEs, and forex traders by reducing transaction costs, lowering currency risk, and improving cash flow constantly.
Consumers may also see softer and cheaper pricing for imported goods. For traders, calmer market conditions and narrower spreads make planning and hedging easier. Overall, this development provides more certainty and stability in daily operations, encouraging businesses to plan larger orders, expand trade activities, and take advantage of improved liquidity in Nigeria’s forex market.
Disclaimer: It is a Shift, Not a Silver Bullet
As it is provoked in this article, however, it is not a permanent solution to the naira’s challenges. Long-term stability depends on consistent economic policies, export growth, and confidence in the broader market. If maintained alongside other reforms, these initiatives could help strengthen the naira, reduce reliance on the US dollar, and encourage smoother, more predictable trade in the years ahead.
Concurrently, the swap size is limited, Nigeria imports more than it exports to China, and policy inconsistency could reverse gains. In today's update, the naira has gained more strength over the USD, as it appreciated by 0.25%, that is, N1.34 against the dollar in the parallel market.