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Currency Swap Agreement Nigeria And China


The governor of the Central Bank of Nigeria and the Chinese equivalent both signed the agreement, he said. (Letter from Chijioke Ohuocha Schnitt by Gareth Jones and Raissa Kasolowsky) In April 2018, the Central Bank of China signed a currency exchange agreement with its counterpart in Nigeria. A total of 15 billion yuan (about $2.17 billion) for 720 billion Nigerian naah or vice versa will be traded in three years. This group of analysts argues that the decline in dollar demand, which the swap agreement aims to achieve, will complement CBN`s current intervention through the currency window of investors and exporters to deepen market stability, limiting the impact of us dollar shortages and exchange rate volatility. In principle, BCSA will provide Nigerian importers with direct access to the renminbi, while Chinese importers will have direct access to Naira without intermediate conversion to USD. Essentially, contrary to the usual way of first exchanging Naira for the dollar before being re-entered into the renminbi, when Nigerians import goods and thus exert pressure on the naira, naira is exchanged directly with the renminbi. As a result, demand for the dollar is expected to decline, reducing pressure on the Naira dollar exchange rate. China has taken increasing steps to position the yuan as a reserve currency. A reserve currency is a currency widely used in international trade and held by a central bank as part of its foreign exchange reserves. The U.S. dollar is the largest reserve currency in the world.

They also note that the NGN/CNY swap agreement will be particularly favourable to Nigeria`s foreign exchange reserves. The two banks will exchange their respective currencies. The CBN will then sell yuan to commercial banks. They will in turn sell to individuals and businesses. At the end of the agreement, the two banks will return the amounts initially collected. In February, the UK`s export finance agency said it would include Naira in its list of “preferential currencies,” which will allow it to finance operations with Nigerian companies denominated in national currency. “The transaction… About $2.5 billion, Nigerian and Chinese industrialists and other companies should have adequate liquidity in local currency, which will reduce the difficulty of finding third-party currencies,” the Central Bank of Nigeria said in a statement.

Nigeria suffered a chronic shortage of dollars after oil prices collapsed in mid-2014, plunging its economy into recession and hammering its foreign exchange reserves, frustrating individuals and businesses who could not import goods into the country. With an average trading volume of about CNY 1.74 billion for the first anniversary of the agreement, the CBN appears to be in a huge comfort zone in the BCSA`s three-year ceiling of 15 billion CNY.

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