A N720 billion swap deal for at least 15 billion Renminbi (Yuan) currency between Nigeria and China has become slow in operation after three years the initiative was introduced.
This has left more Nigerian importers on the China route facing the hurdles of sourcing the dollar as foreign exchange (forex) for their businesses.
Nigeria and China established formal diplomatic relations on February 10, 1971. Relations between the two nations grew closer as a result of the international isolation and Western condemnation of Nigeria’s military regimes (1970-1998).
Nigeria has since become an important source of oil and petroleum for China’s rapidly growing economy; and Nigeria is looking to China for help in achieving high economic growth.
How the swap deal works
Records obtained by Daily Trust on Sunday, revealed that the Central Bank of Nigeria (CBN) in May 2018, signed an agreement with the Peoples Bank of China (PBoC) to facilitate trade between the two countries and enhance foreign reserve management.
The fall in the international price of crude oil which accounts for over 70 percent of Forex had taken its toll on the central bank’s ability to meet the ever-growing demand for dollar.
The currency swap agreement allows importers of goods from China to conclude their transactions in the Chinese currency, the Renminbi (Yuan), instead of the dollar.
The agreement makes Nigeria the third country in Africa (after South Africa and Egypt) to sign such a deal with China.
The CBN said then that the PBoC-CBN Bilateral Currency Swap Agreement would allow the two countries to swap a total of 15 billion renminbi for N720bn, or vice versa, in the next three years, adding that the deal could be extended by mutual consent.
In line with the Bilateral Currency Swap Agreement with the People’s Bank of China, the fortnightly auction of Chinese Yuan via the Retail SMIS window was sustained by the CBN.
It is the third year since the implementation began in July 2018.
According to the records, between July and December 2018, 13 auctions were conducted and Renminbi worth CNY669.66m was sold from the drawdown of CNY1bn.
Similarly, in its 2019 Activity Report, the apex bank said 26 auctions were conducted and renminbi worth CNY782.66m was sold in 2019 from the drawdown of CNY1bn.
The CBN disclosed that it sold 1.45bn yuan since the inception of the currency swap deal with China and the end of 2019.
In a similar report for half year 2020, CBN said it sold CNY1.746.40bn from inception to end of June 2020.
The apex bank noted that the sale of the Chinese yuan further reduced demand pressure for the United States dollar and conserved foreign reserves.
While sufficient data may not yet be available for the total amount sold between July 2020 and April 2021, estimates from previous disbursement suggest that not more than CNY1bn may have been exhausted.