The Central Bank of Nigeria (CBN) on Thursday, released guidelines for the bilateral currency swap agreement between Nigeria and China.
The CBN gave the guidelines in a document signed by its Director, Financial Markets Department, Dr. Alvan Ikoku, and posted on its website.
The regulator, in a document titled, “Regulations for Transactions with Authorised Dealers in Renminbi,” said it might conduct bi-weekly trading sessions to ensure liquidity for trade and direct investment between the two countries.
The apex bank in the guidelines mandated commercial banks and merchant banks, authorised dealers to open Renminbi bank accounts and provide details to CBN. The CBN said, “all authorised dealers shall open Renminbi accounts with a correspondent banks and advise CBN with its Renminbi account details, which may either be with a bank onshore or offshore China.
“Importers intending to import from China shall obtain proforma invoices denominated in Renminbi as part of the documents required for the registration of Form M.
“Forex purchase in the window shall not be used for payments on transactions in which the beneficiaries are not in China. Authorised dealers shall not open domiciliary accounts denominated in Renminbi for customers.”
The CBN, however, said the deal would not stop levies on imports and exports, while unused funds by authorised dealers more than 72 hours would be returned to the apex bank for repurchase at the bank’s buying rate. It added that authorised dealers might not earn more than 50 kobo in a customer’s bid.
The CBN on May 3 signed a bilateral currency swap agreement with the People’s Bank of China (PBoC) worth about $2.5 billion. In local currencies, the swap is worth 15 billion Renminbi (RMB) or ₦720 billion.
The deal is expected to reduce the demand for US dollar by Nigerians importing goods from China, and consequently strengthen the value of the naira.
The deal will reduce certain barriers for Nigerian importers of goods from China as well as the cost of transactions in multiple currencies.
Nigeria has multiple exchange rates against the US currency and has been selling the dollar on the interbank market to boost liquidity after floating the naira for investors.
The naira was quoted at ₦362 to the dollar for investors on Thursday while it was quoted at ₦305.95 on the official market, supported by central bank’s regular intervention.
In February, Britain’s export finance agency said it will add the naira to its list of “pre-approved currencies”, allowing it to provide financing for transactions with Nigerian businesses denominated in the local currency.
The central bank said the Renminbi would only be used to finance trades with China and that local lenders have 72 hours to utilise the fund or return unutilised sum to it.