The Central Bank of Nigeria (CBN) on Wednesday announced the execution of a $2.5 billion bilateral currency swap agreement with the Peoples Bank of China (PBoC) to boost local currency liquidity in the economy.
CBN governor, Godwin Emefiele, led the Nigerian delegation to sign the agreement on behalf of the federal government, while PBoC Governor, Yi Gang, led the Chinese team at a ceremony in Beijing, China, at the end of negotiations on Friday, April 27.
A statement by the CBN spokesperson, Isaac Okorafor, said the transaction valued at Renminbi (RMB) 16 billion was to provide adequate local currency liquidity to Nigerian and Chinese industrialists.
The deal, which would also assist other local businesses by reducing the difficulties they encounter in the search for third currencies.
Mr Okoroafor said the agreement would provide Naira liquidity to Chinese businesses as well as provide RMB liquidity to their Nigerian counterparts in return, to improve the speed, convenience and volume of transactions between the two countries.
Bilateral trade volume between Nigeria and China grew by 30 per cent from 2016 to about $12.3 billion between January and November 2017, Deputy Chinese Ambassador to Nigeria, Lin Jing, said.
Describing Nigeria as the biggest Chinese investment destination in Africa, Mr Jing said the country was also the second largest export market and the third largest trading partner to China in Africa.
With the significant presence of Chinese firms in the Nigerian economy in recent times, most of the companies handing various infrastructural projects for the government have had to struggle with funding to complete them.
The currency in circulation as at March 31 according to CBN was N2.039 trillion.
The swap deal is expected to assist both countries in their foreign exchange reserves management, enhance financial stability and promote broader economic cooperation between the two countries, Mr Okoroafor said.
“With the operationalisation of this agreement, it will make it 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.
“They will take advantage of available RMB liquidity from Nigerian banks without being exposed to the difficulties of seeking other scarce foreign currencies, which attract higher interest rate charges,” he said.
The CBN spokesperson said the deal, which is purely an exchange of currencies, would also make it easier for Chinese manufacturers seeking raw materials from Nigeria to obtain Naira from banks in China to pay for imports from Nigeria.
“Indeed, the deal will protect Nigerian business people from the harsh effects of third currency fluctuations. With this, Nigeria becomes the third African country to have such an agreement in place with the PBoC,” he said.
Mr Emefiele and his Chinese counterpart expressed delight at the conclusion of negotiations and signing of the agreement, saying it would boost mutually beneficial business transactions between Nigeria and China.