CURRENCY SWAP DEAL: CBN highlights conditions for trading

The Central Bank of Nigeria (CBN) said the currency swap agreement recently reached with the People’s Bank of China (PBoC) was to diversify the nation’s currency holdings from United States Dollar (USD).

It also noted that trading can only be done under some conditions so as to enable it achieve its purpose.
The apex bank stated this at a forum on the agreement between the two apex banks in Lagos on Wednesday.

The forum, which brought together stakeholders in the trade sector who are majorly importers, exporters and banks’ officials, was to sensitize them on the conditions and benefit of trading under the new window.

Recall that the CBN and PBoC had signed a three-year renewable bilateral currency swap deal worth about N720 billion or 15 billion Renminbi to facilitate trade between Nigeria and China and ensure stability in the foreign exchange market, among others.

Speaking at the event, CBN Director of Corporate Communications, Isaac Okoroafor, said under the Chinese Yuan (CNY) foreign exchange (forex) window, goods on the CBN’s 41-item list are not eligible importation.

This, according to him, was to discourage importation of basic commodities which can easily be produced in the country. He explained that, while the CBN has not banned any item, the 41 items may be imported using the USD window provided it is not prohibited by the Finance Ministry.

The 41 items include: Rice, Cement, Margarine, Palm kernel/Palm oil products/vegetables oils, Meat and processed meat products, Vegetables and processed vegetable products, Poultry chicken, eggs, turkey, Private airplanes/jets.

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Indian incense, Tinned fish in sauce(Geisha)/sardines, Cold rolled steel sheets, Galvanized steel sheets, Roofing sheets, Wheelbarrows, Head pans, Metal boxes and containers, Enamelware, Steel drums, Steel pipes, Wire rods(deformed and not deformed), Iron rods and reinforcing bard, Wire mesh, Steel nails, Security and razor wine.

Others include: Wood particle boards and panels, Wood Fibre Boards and Panels, Plywood boards and panels, Wooden doors, Toothpicks, Glass and Glassware

Kitchen utensils, Tableware, Tiles-vitrified and ceramic, Textiles, Woven fabrics, Clothes, Plastic and rubber products, polypropylene granules, cellophane wrappers, Soap and cosmetics, Tomatoes/tomato pastes and Eurobond/foreign currency bond/share purchases.

Okoroafor said the idea behind the agreement was to ease the pressure on the nation’s foreign exchange reserves which was occasioned by the high demand of U.S dollars for transactions.

“This will help us build our reserves to give confidence to investors that we have the arsenal to maintain the international value of the Naira,” he said.

According to the apex bank, the Chinese Yuan foreign exchange window would be operated as an auction-based system where there would be bidders and after the biddings, the highest bidder gets the foreign exchange.

Also, the foreign exchange for transaction is expected to be announced at the first auction, and banks are not expected to charge more than 50 kobo spread on the exchange rate.

Presently, the official exchange rate for Naira-USD is N305/USD, while 1 CNY exchanges for N48 in the official market.

The CBN noted that all invoices for transaction under the CNY window should be denominated in Renminbi and not the usual USD invoices, as goods outside China would not be allowed, regardless of its proximity to China.

This implies that importers are to request from their suppliers to prepare invoices in Renminbi, invoices prepared in USD are not eligible, but can only be transacted under the USD window.

Bureau De Change Operators are also not eligible, cash transactions would not be allowed under the window because it is a settlement-based transaction, indicating that opening of domiciliary accounts which is obtainable for the USD foreign exchange window would not be required.

But, with 720 billion Naira and 15 billion Renminbi opened in special accounts by the CBN and PBoC in Nigeria and China respectively, importers can make their purchases in Nigeria by making Naira equivalence of the value of goods to be imported in their bank accounts, while the bank would perform necessary transactions.

On concerns over the possibility of the agreement to make Nigeria “a dumping site” for Chinese goods, the bank regulator said that would be addressed as it was engaging relevant regulatory agencies like Standards Organisation of Nigeria (SON), National Agency for Food and Drug Administration and Control (NAFDAC) among others.

Also, it noted that the Chinese government are putting in the right measures to curb exportation of substandard goods so as to redeem its production of fake goods image.

When the bank’s opinion was sought on who would benefit from the agreement when it begins, it said there is always a loser and a winner in every international trade relation.

While acknowledging that there is a negative trade in balance between Nigeria and China in favour of the latter, the CBN noted that every loser wants to reduce its loss while every winner would work towards increasing its gains.

Pointing out that the Chinese economy is more advanced than that of Nigeria, it said the country needs some goods from China, which it may not be able to produce at the moment.

It added that it would serve as a platform to easily export finished products to China so as to improve production strengthen the Naira and grow the Nigerian economy.

According to the CBN spokesperson, exportation of crude oil to China would not be covered under the deal as the is traded at the international market only in US dollar.

He added that no trader shall be compelled to use the CNY window, noting anyone who finds the window not comfortable due to the conditions may return to the US window to transact their businesses.

By Oluwasegun Olakoyenikan….

 

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