The Central Bank of Nigeria (CBN) on Thursday announced the execution of a bilateral currency swap agreement with the Peoples Bank of China (PBoC).
The deal valued at Renminbi (RMB) 16 billion, or the equivalent of about $2.5bn, according to a statement by Isaac Okoroafor, “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.”
CBN Governor, Godwin Emefiele, led CBN officials, while PBoC Governor, Dr. Yi Gang, led the Chinese team at the official signing ceremony in Beijing, China, on Friday, April 27 2018.
The bilateral currency swap deal, the statement said, is a culmination of over two years of painstaking negotiations by both Central Banks.
Among other benefits, Okorafor added, the “agreement will provide Naira liquidity to Chinese businesses and provide RMB liquidity to Nigerian businesses, 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 (SMEs) 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 RMB liquidity from Nigerian banks,” without being exposed to the difficulties and risk associated with seeking other currencies.
The deal, which is purely foreign exchange of currencies, will also make it easier for Chinese manufacturers seeking raw materials from Nigeria to obtain enough Naira from banks in China to make payment.
“Indeed, the deal will protect Nigerian business people from the harsh effects of third currency fluctuations,” Okorafor stressed, noting that Nigeria becomes the third African country to have such an agreement in place with the PBoC.
The Nigerian and Chinese officials expressed delight at the currency swap agreement, while hoping that it would boost mutually beneficial business transactions between Nigeria and the Peoples Republic of China.
China is Nigeria’s second-biggest trading partner after the U.S., with volumes between the two totaling $9.2 billion in 2017, according to data compiled by Bloomberg. Nigeria runs a deficit, importing $7.6 billion of goods including textiles and machinery from China and exporting just $1.6 billion, mainly oil and gas.