Renminbi Intervention: Banks To Earn 50 Kobo Spread On Customer’s Bid- CBN

Renminbi Intervention: Banks To Earn 50 Kobo Spread On Customer’s Bid- CBN


Post Views: 276 The Central Bank of Nigeria (CBN), on Thursday released its “Regulations for transactions with authorized dealers in Renminbi” on the ...

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The Central Bank of Nigeria (CBN), on Thursday released its “Regulations for transactions with authorized dealers in Renminbi” on the operations of its recently signed Bilateral Currency Swap with its counterpart- the Peoples Bank of China (PBoC), the highpoint of which is the fixed earning of 50 kobo only by authorized deals on a customer’s bid.
According to the guideline signed by Dr. Alvan E. Ikoku, Director, Financial Markets Department, “there shall be no predetermined spread on Spot FX transactions executed through the CBN Renminbi intervention.
The currency swap, according to the guidelines, shall be used to finance trade and direct investment between the Peoples’ Republic of China (PRC) and the Federal Republic of Nigeria.
It would also serve to maintain financial market stability and other purposes that both parties may agree on.
To become eligible, all banks (authorized dealers) are required to open Renminbi accounts with a correspond bank, advising the CBN with its Renminbi Account details, either with a bank onshore or offshore China.
The guideline also requires that importers planning 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 from this window shall only be used to pay for transaction in which the beneficiaries are in China, just as authorized dealers (who can only be commercial and merchant banks) shall not open domiciliary accounts denominated in Renminbi for customers.
Payment, according to the CBN, shall be in line with Memorandum 9 of the Foreign Exchange Manual, such that letter of credit must be routed from beneficiary/supplier through his/her bank to the issuing bank.
It warned that “on no account must a bank endorse or pay on documents that do not comply with the routing outlined above.”
Bills for collection must also be routed to the issuing bank either directly from the supplier’s bank or through the offshore correspondent of the issuing bank; just as documents considered “not valid” for forex transactions “shall be routed by the supplier directly to the applicant’s bank that validates the underlying e-Form ‘M.’
The CBN further directed that while it may conduct bi-weekly Renminbi bidding sessions, such sales “shall be applicable only to trade-backed transactions.”
All banks must also utilize funds such funds within 72 hours from the value date, or must return same to the CBN for repurchase at the bank’s buying rate, even as importers and exporters shall continue to pay applicable levies on imports and exports respectively.
The current accounts of such banks shall be debited with the Naira equivalent of the Renminbi bid request on the intervention date.
“Bids shall be settled spot through a multiple-price book bidding process and will cut-off at a marginal rate (to be disclosed after the conclusion of the Special SMIS- Retail process,” the CBN added.
The guideline is coming barely one month after the CBN, on May 3, 2018, announced signing of the currency swap deal valued at Renminbi (RMB) 16 billion, or the equivalent of about $2.5bn.
A statement by Isaac Okoroafor, Acting Director, Corporate Communications at the CBN had explained that the deal “is 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.” (READ MORE)