The bilateral currency swap agreement between Nigeria and the People’s Bank of China (PBoC) has recorded N436.67 billion (CNY7.04 billion) from inception in 2018 to June 2022.
According to the Central Bank of Nigeria (CBN), the currency swap agreement, which commenced in July 2018, was renewed in April 2021 for another three-year term.
Consequently, a total of CNY1.26 billion was sold in 13 auctions during the review period, compared with CNY1.22 billion in 13 auctions in the corresponding period of 2021.
What is currency swap?
According to the apex bank, this is an agreement between two parties to exchange cash flows in different currencies at some predetermined rates for a specified period.
When and where was the currency swap signed?
Godwin Emefiele, governor of the CBN, led CBN officials while Yi Gang, PBoC governor, led the Chinese team at the official signing ceremony in Beijing, China, on April 27, 2018, a culmination of over two years of painstaking negotiations by both central banks.
The aim of the deal was to provide adequate local currency liquidity to Nigerian and Chinese industrialists and other businesses, thereby reducing the difficulties encountered in the search for third currencies.
Nigeria became the third African country to have such an agreement in place with the PBoC.
Has the objective of signing the agreement been achieved?
“To a large extent, yes. It has helped to push demand away from dollar to renminbi, thereby reducing the cost of transactions,” said Ayodele Akinwunmi, relationship manager, corporate banking at FSDH Merchant Bank Limited.
Noting that the Chinese yuan is not held or accepted as widely as the dollar, he said China is one of the countries that Nigeria imports goods from.
Akinwunmi said: “If you multiply that figure [CNY7.04 billion] by N62, the exchange rate today, it will give you the extent of the volume of imports that have been shifted from dollar to renminbi, and by the time you convert it back to dollar, that is the extent of the dollar that has been pushed to renminbi by virtue of the CBN policy.
“The area we need to work on is the ability to generate more foreign exchange via export of goods and services to enable us to reduce the demand for FX.”
What are the other benefits of the currency swap agreement?
The agreement provides naira liquidity to Chinese businesses and renminbi liquidity to Nigerian businesses respectively, thereby improving the speed, convenience and volume of transactions between the two countries. It also assists both countries in their foreign exchange reserves management, enhances financial stability and promotes broader economic cooperation between the two countries.
With the operationalisation of this agreement, it is easier for most Nigerian manufacturers, especially small and medium enterprises and cottage industries in manufacturing and export businesses to import raw materials, spare parts and simple machinery to undertake their businesses by taking advantage of available renminbi 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, also makes it easier for Chinese manufacturers seeking to buy raw materials from Nigeria to obtain enough naira from banks in China to pay for their imports from Nigeria. It was expected to protect Nigerian business people from the harsh effects of third currency fluctuations.
