China and Nigeria have extended their 15 billion yuan ($2 billion) currency-swap agreement, aiming to boost trade and investment ties between the two countries. The agreement, valid for three years, may be renewed upon mutual agreement, according to a statement from the People's Bank of China.

This move marks the continuation of a partnership established in April 2018, initially for a three-year term, to address dollar shortages in Nigeria. The currency swap aims to provide naira liquidity for Chinese businesses and yuan liquidity for Nigerian companies, reducing reliance on the US dollar for transactions.

China is Nigeria's largest trading partner, ahead of the US, with imports of $11.2 billion in goods and services from Nigeria and exports of $2.4 billion in 2023. The extension of the currency swap agreement is expected to further strengthen financial collaboration between the two nations.

The decision to sidestep the US dollar could, however, risk provoking tensions with U.S. President-elect Donald Trump, who has warned of steep trade tariffs against members of the BRICS bloc, should they "back any other currency to replace the mighty U.S. Dollar." Although Nigeria is not a BRICS member, it has expressed interest in joining the bloc.

Nigeria, Africa's most populous nation, has faced prolonged dollar shortages, which eased somewhat last year when the central bank allowed the naira to trade more freely against the dollar. Despite improved liquidity in the foreign exchange market, the naira has come under significant pressure, losing 70% of its value since the currency peg was lifted.

By reducing local demand for dollars, the currency-swap facility could help stabilize the naira. This strategic move is expected to have a positive impact on Nigeria's economy, which has been struggling with dollar shortages and currency fluctuations.

The extension of the currency swap agreement highlights the growing importance of trade and investment ties between China and Nigeria. As Nigeria continues to navigate its economic challenges, this partnership is likely to play a significant role in shaping the country's economic future.

In the broader context, the move also underscores the shifting global economic landscape, with emerging markets like China and Nigeria increasingly looking to reduce their reliance on the US dollar. As the global economy continues to evolve, it will be interesting to see how this partnership unfolds and its implications for international trade and finance.