The CBN on Thursday released the framework for the operations of the Bilateral Currency Swap deal executed between the People’s Bank of China and the Central Bank of Nigeria. The agreement is for a maximum of CNY15billion for NGN 720billion within the beast 3 years.
The currency swap deal allows both banks to make liquidity available in their respective currencies for the purpose of trade and investment across the two countries. This will be done through sales and purchase and subsequent resale and repurchase of Chinese Yuan against the Naira and vise versa.
How it will operate for Banks – currency swap deal
- Authorized dealers (Banks only) will open Renminbi account with a correspondent bank either onshore or offshore China and advise CBN with its account details.
- Banks are expected to utilize fund within 72hours from the value date failing which funds not utilized shall be returned to the CBN for repurchase at the bank’s buying rate.
- CBN to debit Naira account of participating banks on intervention date with equivalent of Renminbi bid request.
- Bids will be settled immediately at a rate to be disclosed after the conclusion of the special SMIS – Retail bidding process.
- The CBN reserves the right to conduct another bidding session if in its opinion the concluded bidding exercise does not arrive at a rate that reflects the actual market NGN/CNY exchange rate.
How it will operate for bank customers
- Importer wishing to import from China to obtain Proforma Invoice denominated in Renminbi as part of the document required for Form M registration.
- The window is for transaction with beneficiaries in China only.
- Banks are not to open Renminbi account for their customer.
- Payments are allowed only for Letters of Credit transaction, Bills of Collections transactions and Not Valid for Forex transactions which documents are routed to the banks that validates the Form M.
- CBN may conduct bi-weekly Renminbi bidding sessions
- Sales will be applicable to trade backed transactions only
- No applicable import and export levies exemptions on transactions.
- Only a maximum 50kobo per CNY are allowed as spread for banks on the transaction.
Among other things, this bilateral agreement between Nigeria and its biggest trading partner (arguably though) is expected to:
- Formalize all trading activities between the 2 countries. Current Importations from China into Nigeria which is largely retail, are majorly informal
- Protect Nigerian importers, some of whom may have fallen victims of some dubious Chinese exporter who ends up shipping lower value goods after receiving payment via electronics transfers.
- Makes payment for importations from China cheap and seamless. Current exchange rate is N48/CNY
- Above all reduce the pressure on the Naira which come largely from China importers who source for USD from BDC’s to satisfy their exporters demand for electronics transfers.