Assessment of China and Nigeria Currency Swap: The Positive Impacts on the Nigerian Economy

International Journal of Research and Innovation in Social Science (IJRISS) | Volume IV, Issue III, March 2020 | ISSN 2454–6186

Senior Assessment of China and Nigeria Currency Swap: The Positive Impacts on the Nigerian Economy

 Chief Ajugwe, Chukwu Alphonsus Ph.D.
Ajugwe Chukwu and Associates

Abstract: It is noteworthy to pinpoint that historical self-evidence have demonstrated that many Countries have employed currency swap strategic weapon to stabilize their currencies; atypical example was currency swap between China and Argentina which helped both Countries to stabilize their currencies. Again the U.S. foreign Reserves engaged in an aggressive swap strategy with European Central Banks during 2010 European financial crisis to stabiles the euro, which was failing in value due to the Greek financial crises. Nigeria being a mono-foreign exchange earner based solely in exportation of crude oil to the world market, therefore, it is imperative, the ebb and flow of the price of crude oil in the International Market will surly affect the foreign exchange earnings of the country.
In view of the above, it becomes absolutely, an economic strategic importance for Nigeria to adopt currency swap strategy to stabilize its currency and with other advantages that may accrue to the economy. Specifically, Nigeria is to enter into currency swap agreements with China with the understanding that it will help her to stabilize the currency more especially when there is a fluctuation in the price of the world oil market.
The papers is therefore anchored on the examination of histories of different counties, which have embarked on currency swaps, it will also critically analysis the mechanism of the currency swap and subject the positive and negative impacts of the currency swap of Nigeria and China agreement into deeper economic analysis. The Paper will also go a long way to insightful and incisively proffer and recommend possible solutions to the problems that may be encountered in the formulation and implementation of the swap deal.

I. INTRODUCTION

It has to be mentioned that oil and gas constitute the major foreign earnings of Nigeria and central pillar on which Nigerian economy is based; the nose-diving of the oil prize between 2014 to early 2016 to the extent that world crude oil price dropped from $73.75 to $44.50 in mid-January 2015, posited critical negative effects on the foreign reserve of Nigeria. Worst still, Federal Government of Nigeria never saved the surplus inflow of funds during the oil price boom to reduce the negative effects on the economy when the price started to plummet. The net effect was acute shortage of the foreign exchange earnings to take care of the imports thus the need to conserve the scare foreign earnings which constitutes the backbone of the economy.

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