A recent report revealed that Ethiopia and Nigeria’s central banks have finalized a currency swap transaction worth $100 million. This arrangement allows an Ethiopian airliner to receive local currency worth $100 million, while Dangote Cement is said to have garnered a similar sum in nairas.
The Ethiopian central bank has reportedly conducted a $100 million currency swap with Nigeria’s central bank. Under this swap agreement, the national airliner of Ethiopia, which had been unable to bring back funds stranded in Nigeria, assumed control of the profits of the Nigerian cement company, Dangote Cement, which were similarly frozen in Ethiopia.
Based on a local report, the currency swap transaction was the chosen course of action for the two central banks as it circumvents the requirement for U.S. dollars during settlements. As the report suggests, this plan seems appropriate for Ethiopia and Nigeria, both of which are currently dealing with a significant lack of foreign exchange.
CryptokenTop.com News has reported that these two countries are among a number of African nations dealing with consistent shortages of U.S. dollars. These deficits have subsequently fueled the growth of a parallel foreign exchange market. Both central banks’ attempts to regulate this parallel market have apparently not managed to redirect the greenback’s flow away from it.
As per this arrangement, Ethiopian Airlines, which was unable to recover approximately $180 million from Nigeria, will obtain local currency equivalent to $100 million from the National Bank of Ethiopia (NBE). Similarly, Dangote Cement, with over $200 million stuck in Ethiopia’s banking system, will receive a payment in nairas equivalent to $100 million from the Central Bank of Nigeria.
Unidentified sources at NBE have reportedly described this currency swap as a short-term solution. Mesfin Tassew, the CEO of the Ethiopian airline, indicated that the swap agreement pertains only to the $100 million, and not to the entire amount of trapped funds.
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Frequently Asked Questions (FAQs) about Currency Swap
What is the recent currency swap transaction between Ethiopia and Nigeria about?
The central banks of Ethiopia and Nigeria have executed a $100 million currency swap transaction. This arrangement allows an Ethiopian airline to obtain local currency equivalent to $100 million, while Dangote Cement, a Nigerian company, received a similar amount in nairas.
Why was the currency swap transaction needed?
What is the impact of the currency swap on Ethiopian Airlines and Dangote Cement?
Ethiopian Airlines, which could not retrieve about $180 million from Nigeria, will receive local currency equivalent to $100 million from the National Bank of Ethiopia. Dangote Cement, with over $200 million stuck in Ethiopia’s banking system, will receive nairas equivalent to $100 million from the Central Bank of Nigeria.
Is the currency swap transaction a permanent solution to the US dollar shortages in Ethiopia and Nigeria?
No, unnamed sources at the National Bank of Ethiopia have described the currency swap transaction as a temporary measure. The swap agreement applies only to the $100 million, and not to the entire amount of blocked funds.
What has been the effect of US dollar shortages in Ethiopia and Nigeria?
The persistent shortages of U.S. dollars have led to the growth of a parallel foreign exchange market in these countries. Attempts by both central banks to regulate this parallel market have apparently not been able to control the flow of the US dollar away from this parallel market.
More about Currency Swap
- Currency Swap Agreements: A Brief Overview
- Dangote Cement Company Profile
- Ethiopian Airlines: Understanding Its Operations
- Challenges of Foreign Exchange in African Nations
- The Impact of US Dollar Shortages on African Economies