Daily Insight: Currency Swap – How the CBN plans to make it work

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Last week, the CBN held a sensitization session with operators and stakeholders on the mechanics of the currency swap agreement worth $2.5bn (¥15.0bn or N720.0bn) which was signed with the People’s Bank of China (PBoC).

We highlight the takeaways from the session below;

  • The CBN will nominate clearing banks and provide details of such banks to the PBoC
  • A special FX auction will hold on a bi-weekly basis where Nigerian importers of Chinese goods can purchase the Renminbi
  • Renminbi sales at the auction will be applicable to only trade backed transactions
  • Importers & exporters will continue to pay applicable levies on exports and imports
  • The exchange rate at the special auction will be market determined but at a competitive rate to incentivize trades in Renminbi rather than the USD
  • Bids shall be settled on the spot through a multiple price book bidding processes and will cut-off at a marginal rate.
  • To execute trades under the agreement, Nigerian importers must request for a quote from Chinese suppliers with a Renminbi-denominated invoice
  • Importers are expected to have secured all necessary documentation, establish a ‘Form M’ and bid for the Renminbi through an authorized dealer at the bi-weekly auction.

The benefits to stakeholders include an increase in speed, volume, and convenience of trade with China as well as a reduction in the associated transaction cost.

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