Nigeria-China Currency Swap Deal To Deepen Naira Sovereignty In Africa

Nigeria-China Currency Swap Deal To Deepen Naira Sovereignty In Africa

The Association of Bureaux De Change Operators of Nigeria (ABCON) has applauded the $2.5 billion currency swap agreement between the Central Bank of Nigeria (CBN) and the People’s Bank of China (PBoC), saying the deal will promote naira’s sovereignty in Africa.

ABCON president, Alhaji Aminu Gwadabe, who spoke on the agreement at the weekend, in Lagos, said the naira will benefit hugely from the deal given the rising influence of Chinese Yuan in the international market. He said the admittance of Yuan into the basket of International Monetary Fund (IMF) currencies and the Naira/Yuan swap deal will actualize the dream of naira sovereignty in Africa.

The naira has remained stable at both the official and parallel markets, as the CBN continues its weekly dollar interventions. The naira which in February 2017 was exchanging at N520/$ in the parallel market now exchanges at N361/$ while rate at the official market remains N305.9/$. The Yuan has equally made significant progress this year, appreciating 1.8 per cent against the dollar to become the world’s second-strongest Asian currency.

The ABCON boss also urged the CBN to consider diversifying dollar disbursement to BDCs with percentage amount of Yuan to meet the critical needs of their numerous clients travelling to China for personal and business purposes. He explained that if implemented, such move will further deepen the interest in purchasing Yuan and reduce dollar demand.

Gwadabe disclosed that the currency swap deal was part of the CBN’s plan to keep the naira stable and protect the foreign reserves domiciled in dollars. He said the deal will provide adequate local currency liquidity for Nigerian and Chinese industrialists and reduce difficulties they face in searching for the greenback.

He explained that in local currencies, the swap is worth 15 billion Renminbi (RMB)/Yuan or N720 billion adding that the three-year renewable deal will allow  for  the  direct exchange of RMB and naira for the purpose of trade and direct investment between the two countries. The agreement could be renewed on expiration, at the instance of both countries.

The ABCON boss said Bureau de Change (BDCs) will equally benefit from the swap deal  given that a stable and strong naira is good for the economy and operators, adding that increased use of Yuan in trade deals will also open a new business opportunity for BDC operators.

According to Gwadabe, ABCON will continually support CBN in achieving its exchange rate stability mandate and promoting economic growth through increased global partnerships and collaborations.

According to the guideline, the swap agreement allows for both banks to among other purposes, make available liquidity in their respective currencies for the facilitation and promotion of trade and investments across Nigeria and China. This will be done through the purchase, sale and subsequent repurchase and resale of the Chinese Yuan (CNY) against naira and vice versa.

Gwadabe reiterated that the said swap deal will smoothen bilateral trade, boost investment, and protect the financial market in both countries as well as cut dollar demand by Nigerians entrepreneurs importing from China. All these, he said, will firm the value  of  the  local currency.

He said that  China has  remained   Nigeria’s largest  import  partners  over  the  last  five  years, with  imports from  China  standing at over 20 per cent of Nigeria’s total imports. He therefore advised that to achieve the full gains of the deal, Nigeria has to take steps that boost its trade balance with China by raising the quality of its local products to make them more attractive and acceptable to the Chinese people.

He said the deal will reduce currency transaction cost for importers that go for Yuan while also easing foreign exchange liquidity pressures in periods of rate volatility and/or scarcity for Nigeria.

“The deal will expand the BDCs capacity to handle new business transactions in Yuan. Besides, BDCs in both countries will have their transaction base expanded, including new opportunity to transact higher volume of Naira/Yuan in the export/import of equipment, raw materials and finished goods,” he said.

Gwadabe praised the CBN-led Bankers’ Committee for promising incentives to Nigerian businesses that import their machinery and goods with Yuan instead of dollar, adding that such act will deepen entrepreneurs’ interest in the swap deal.

According to the regulations for transactions with authorized dealers in Renminbi, importers intending to import from China shall obtain Proforma invoice denominated in Renminbi as part of the documents required for registration of Form ‘M’.