Two years after, the Central Bank of Nigeria (CBN) has commenced discussions on a currency swap agreement with the People’s Bank of China (PBOC). With the ongoing talks, the two banks have finally brokered a deal, having signed a three-year bilateral currency swap agreement worth N720 billion valued at ¥15 billion.
An official statement issued separately by the CBN and the PBOC confirmed the swap which is expected to facilitate bilateral trade between the two countries. Trade between China and Nigeria has been on the rise following the commencement of swap discussions in 2016. Deputy Chinese ambassador to Nigeria, Mr. Lin Jing, had earlier said China’s bilateral trade with Nigeria between January and November 2017 stood at 12.3 billion,a figure that is 30 per cent improvement compared to the same period of 2016. As China is not in the top 10 export partners of Nigeria, this makes the Yuan not readily available for Nigerian traders who want to import from China. Instead, they convert the naira to United States dollars before converting it to Yuan, a situation that the currency swap would address. A currency swap involves the exchange of principal and interest in one currency for the same in another currency.
Simply put, it is the exchange of one currency for another at a specific rate of exchange and for a duration. It is an attempt to facilitate increased trade between two countries as well as offer a means of minimising foreign borrowing costs. A statement on the website of the PBOC said Governor Yi Gang met with CBN governor, Godwin Emefiele, during the International Monetary Fund (IMF) and World Bank Group Spring Meetings on April 21, 2018, and exchanged views on bilateral financial cooperation, as well as other related issues. Consequently, it said the PBOC with the approval of the State Council, had signed the swap agreement in Beijing on April 27, 2018 with the CBN “for the purpose of facilitating bilateral trade and direct investment, and safeguarding financial market stability in both countries.”
The agreement is valid for three years and can be extended upon mutual consent. The CBN in its statement said the agreement which was signed after “two years of painstaking negotiations by both central banks” was aimed at providing adequate local currency liquidity to Nigerian and Chinese industrialists and other businesses thereby reducing the difficulties encountered in the search for third currencies. “This agreement will provide naira liquidity to Chinese businesses and provide RMB liquidity to Nigerian businesses respectively, thereby improving the speed convenience and volume of transactions between the two countries. “ It will also assist both countries in their foreign exchange reserves management, enhance financial stability and promote broader economic cooperation between the two countries. “With the operationalisation of this agreement, it will be easier for most Nigerian manufacturers especially small and medium enterprises and cottage industries in manufacturing and export businesses to import are materials spare parts and simple machinery to undertake their businesses by taking advantage of available RMB liquidity from Nigerian banks without being exposed to the difficulties of seeking other scarce foreign currencies. “The deal which is purely an exchange of currencies will also make it easier for Chinese manufacturers seeking to buy materials from Nigeria to obtain enough naira from banks in China to pay for their imports from Nigeria. Indeed the deal will protect Nigerian business people from the harsh effects of third currency fluctuations.”
Credit: The Leadership