Nigeria-China FX swap deal hits CNY1.45bn in two years

By Motolani Oseni

The currency swap conducted between Nigeria and the People’s Bank of China (PBoC) in the last two years, now stood at CNY1.45billion, the Central Bank of Nigeria (CBN) has revealed.

The Bi-lateral Currency Swap Agreement (BCSA) with the PBoC, the fortnightly auction of Chinese Yuan via the Retail SMIS window was sustained between 2018 and in 2019.

According to the apex bank’s annual activity report, “This further reduced demand pressure for the US dollar and conserved foreign reserves.

“In the review period, 26 auctions were conducted and Renminbi worth CNY782.66 million was sold from the drawdown of CNY1.00 billion.

“In the corresponding period of 2018, Renminbi worth CNY669.66 million, from the drawdown of CNY1.00 billion, was sold in 13 auctions.

“CNY1.45billion has been sold from inception to end-December 2019.” On June 6, 2018, CBN issued the Regulations for Transactions with Authorised Dealers in Renminbi, which provided the framework for implementations.

The apex bank and the PBoC executed the Currency Swap Agreement on behalf of their respective countries.

From July 27, 2018, when the first intervention under the Naira-Yuan Swap deal was executed, experts have reiterated that CBN-driven bilateral intervention has more to offer to Nigerian businesses with an interest in China.

Besides the fact that the opening of the window of the future provided the opportunity for most importers to quote dollar exchange rate ahead, as opposed to spot purchase, the swap deal opened up a new window for the management of the country’s reserve without immediate depletion of the value, while importers’ financial transactions would be facilitated easily.

The move thus became imperative given burgeoning bilateral deals and the challenge of converting to the dollar before consummating transactions, that is, removing the need to first source the dollars before payments for transactions involving Yuan and Naira.

The apex bank had indicated at the commencement of the intervention that the sales shall be through a combination of spot and short-tenored forwards and shall be a Special Secondary Market Intervention Sales (SMIS) retail, dedicated to the payment of Renminbi denominated Letters of Credit for raw materials and machinery and agriculture.

The former Director, Corporate Communications, CBN Isaac Okorafor, had explained that due to the peculiarity of the exercise, CBN would not be applying the relevant provisions of its Revised Guidelines for the Operation of the Inter-bank Foreign Exchange Market, which directs all SMIS bids to be submitted to the CBN through the Forex Primary Dealers (FXPDs).

He also said the CBN would also not be applying the relevant provisions of the Guidelines which equally provide that “Spot FX sold to any particular end-user shall not exceed one per cent of the overall available funds on offer at each SMIS session”.

The report stated that a total of $27.7 billion was reported as total FX spot sales between 2018 and 2019.

According to the report, total spot sales dropped to $13.1billion in 2019 as against $14.6billion in 2018.

Okorafor further explained that there would be no predetermined spread on the sale of forwards by authorised dealers to end-users under the Special SMIS-Retail, adding that authorised dealers would be allowed to earn 50 kobo on the customers’ bids.

The deal created a platform that provides Naira liquidity to Chinese companies and investors looking to do business with Nigeria on the one hand and provides Chinese Yuan liquidity to Nigerian companies and investors looking to do business with China on the other hand.

However, the CBN in its report also disclosed that it sold $5.69billion foreign exchange (FX) to those in the invisible and Small and Medium Enterprises (SMEs) between 2019 and 2018.

The apex bank report noted that FX sales between 2019 and 2018 had dropped by 28.2 per cent to $12.84billion in 2019 from $17.87billion in 2018.

However, Nigerian NewsDirect gathered that FX sales to invisible between 2019 and 2018 dropped by 29per cent to $1.12 billion from $1.58 billion in 2018 while FX sales to SMEs rose by 27.3 per cent to $1.67billion in 2019 from $1.32billion in 2018.

According to the report, “ The daily rate at the I&E window opened at N364.41/US$ on January 2, 2019, and closed at N364.51/US$ at endDecember 2019, representing a depreciation of N0.10/US$.

“On a monthly average, the exchange rate opened at N363.76/$ in January and closed at N363.57/ US$ in December 2019.”

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The report, however, stated that the turnover of transactions at the window amounted to $64.86 billion at end-December, 2019, compared to $59.94 billion in the corresponding period of 2018.

“The increase in the turnover as a result of increased inflows to the country. From inception in mid2017, the turnover of transactions amounted to $148.72 billion, at endDecember, 2019,” the report added.