CBN Finally Signs Currency Swap Deal With Republic Of China

The Central Bank of Nigeria (CBN), has finally signed the long awaiting currency swap deal with the Chinese government.

The Central Bank of Nigeria ("CBN"), on June 6, 2018, issued the Regulations for Transactions with Authorized Dealers in Renminbi ("Regulations"). The Regulations provide the framework for implementing the Bilateral Currency Swap Agreement ("Currency Swap Agreement/ the Agreement") which was concluded on April 27, 2018, at a ceremony in Beijing, China, between the Federal Republic of Nigeria ("Nigeria") and the People's Republic of China ("China"). The CBN and the People's Bank of China ("PBoC") executed the Currency Swap Agreement on behalf of their respective countries.

This is because about 70% of imported goods to Nigeria comes from China and other Asian countries while about 12% only come the US. So, it really doesn't make sense to continue trading with dollars at the Asian market at N350 to 1 dollar instead of N47 to 1 yuan which is more than 4 times cheaper.

WHAT ARE THE BENEFITS:

The cost of imported goods will drastically reduce and we can buy those phones at a very low rates

Nigerian banks can now expand to China. Because they will want to have a representative office there.

When you get to China, you can withdraw naira directly from your account from any Nigerian banks presence in China.

Inflation will reduce to the bearest minimum

The strength of Euros, Dollars, and Pounds sterling will go down against the naira, thereby giving the naira a sense of relief.

WHAT IS THE SWAP DEAL ABOUT?

The swap deal is an agreement with a three (3) year tenor which allows both the CBN and PBoC to swap a maximum amount of Fifteen Billion Renminbi/Chinese Yuan (CNY 15 Billion) for Seven Hundred and Twenty Billion Naira (NGN 720 Billion). This amount is equivalent to US$2.5 Billion using an exchange rate of NGN305: 1US$.

As provided in the Regulations, the Currency Swap Agreement was purposely executed to:

• finance trade and investment between China and Nigeria;
• maintain financial market stability; and
• facilitate other connected purposes as may be agreed upon by both countries.

Essentially, the Currency Swap Agreement seeks to create a platform that provides Naira liquidity to Chinese firms and investors looking to do business with Nigeria on the one hand; and also provides Chinese Yuan liquidity to Nigerian firms and investors looking to do business with China on the other hand. The Currency Swap Agreement is designed to aid trade transactions between China and Nigeria and remove the need to first source for the "greenback" (US Dollars) before payments for transactions involving the two countries can be made.

Accordingly, both the CBN and the PBoC shall (subject to the maximum amount indicated under the Currency Swap Agreement), make available liquidity in their respective currencies for the facilitation and promotion of trade and investments between the two countries through the purchase, sale, and subsequent repurchase and resale of the Chinese Yuan against the Naira and vice versa. For this purpose, under the Currency Swap Agreement, the CBN may conduct bi-weekly Renminbi bidding sessions.

SYNOPSIS OF THE REGULATIONS

The Regulations stipulate the terms and conditions guiding the operation of the Currency Swap Agreement and make provisions in respect of: 

(a) eligibility criteria for Authorized Dealers to participate in the CBN bi-weekly Renminbi bidding sessions; 

(b) relevant documentation to be provided by the importer in order for an Authorized Dealer to make authorized Renminbi payments; 

(c) the medium through which the CBN would provide Renminbi to the market (i.e. bidding sessions or special retail or wholesale sessions); and 

(d) applicable charges which Authorized Dealers may earn for relevant transactions, among others.