THE Central Bank of Nigeria plans to start bi-weekly auctions of Renminbi, the Chinese currency, at the foreign exchange market as part of the recent currency swap deal between the country and China

By Anayo Ezugwu

The Central Bank of Nigeria, CBN, is planning to start bi-weekly auctions of Renminbi, the Chinese currency at the foreign exchange market. This followed the recent  $2.5 billion bilateral currency swap agreement between the CBN and the People’s Bank of China. Also, the CBN is ready to incentivise importers and traders who tender their invoices in Renminbi, RMB.

Ahmad Abdullahi, director, banking supervision, CBN, said the bank is in a good shape to curtail any foreseen circumstances in the macroeconomic environment.

According to Abdullahi, “the committee recognised the mixed signals coming from the global economy. The rise in US interest rate and its impact on the Nigerian economy, the trade wars and its impact also on the Nigerian economy, the tax cut in the United States and what it means for capital outflow for emerging economies like Nigeria.”

At the begining of sensitisation programme for exporters, regulators and other stakeholders in Kano, on Wednesday, June 17, the CBN explained that the meetings with them were aimed at educating them on the benefits of the currency swap agreement.

A statement earlier issued by Isaac Okorafor, spokesman, CBN, also stated that the agreement is aimed at providing adequate local currency liquidity to Nigerian and Chinese industrialists and other businesses to  reduce the difficulties encountered in the search for third currencies.

From the guideline released by the CBN, the apex bank’s expectation, however, is that the swap agreement will see both banks make liquidity available in their respective currencies to facilitate and promote trade and investment between the two countries through the purchase, sale and subsequent repurchase and resale of the Chinese Yuan against the Naira and vice versa.

The guideline, according to Alvan Ikoku, director, Financial Markets Department, CBN, showed that CBN is considering conducting bi-weekly trading sessions to ensure liquidity for trade and direct investment between the two countries. It has mandated commercial banks and merchant banks, authorised dealers to open Renminbi bank accounts and provide details to the CBN.

“All Authorised Dealers shall open Renminbi accounts with a corresponding bank and advise CBN with its Renminbi Account details which may either be with a bank onshore or offshore China. Importers intending to import from China shall obtain Proforma invoice denominated in Renminbi as part of the documents required for the registration of Form M.

“FX purchase in the window shall not be used for payments on transactions in which the beneficiaries are not in China. Authorised dealers shall not open domiciliary accounts denominated in Renminbi for customers.”

The CBN, however, said the deal would not stop levies on imports and exports, while unused funds by authorised dealers more than 72 hours would be returned to the apex bank for repurchase at the bank’s buying rate. It added that authorised dealers might not earn more than 50 kobo in a customer’s bid.

However, stakeholders have urged Nigeria to tread with caution as far as the currency swap deal with China is concerned. Austin Nwaeze, lecturer, Pan-Atlantic University and economic analyst, said the deal was only good on its surface value. He noted that in the long run, the initiative would allow the Chinese to compete with our local businesses, thereby, impeding the growth of indigenous firms.

He said the only benefit of the currency swap deal for Nigeria was that in the short run, it would address third-party sourcing of the Chinese currency by Nigerian importers. “However, it will take the trade deals with the Chinese to a new height and reduce the pressures on our foreign exchange,” Nweze said.

Henry Boyo, economist, said the Yuan deal would not reduce inflation or strengthen the Naira rate. “Clearly, the naira rate is not distinctly a function of inadequate dollar reserves or yuan reserves, but actually a function of surplus supply of naira and regular auctions of dollars rations by the CBN in a market flush with naira. Unfortunately, the yuan/naira deal may further increase the challenge of systemic naira excess,” he said.

But Muda Yusuf, director-general, Lagos Chamber of Commerce and Industry, LCCI, said the swap deal would smoothen the payment system in the bilateral trade between the two countries but stressed that it might not really strengthen the naira in the foreign exchange market, as the nation would have to enhance its productive base to achieve that.

– Jun. 29, 2018 @ 10:49 GMT |