Currency swap - What you need to know about currency swap between Nigeria, China

oclinton (49)in #currencyswap • 6 years ago

Since thecurrency swap deal was announced by the Central Bank of Nigeria (CBN)on May 3, Nigerians have been going back on forth on conjectures about what thenew policy holds for them and the country’s economy.Even before the framework detailing the operational guidelines of the deal finally released, speculations have been rife on its possible impact or otherwise on Nigeria.Under the bilateral currency swap agreement, the Peoples Bank of China (PBC)will receive about 16 billion Chinese Renminbi (RMB), while the Central Bank of Nigeria (CBN) will give about $2.5 billion.CBN governor, Godwin Emefiele, said the funds would provide adequate local currency liquidity to Nigerian and Chinese industrialists to carry on their businesses.Also, the currency swap would assist other local businesses by reducing the difficulties they encounter in the search for currencies in their business transactions.Mr Emefiele said the primary benefit would be to boost local currency liquidity in the Nigerian economy.Already, Standard Chartered Bank has been selected as the settlement bank, Stanbic IBTC Bank, which has affiliation with Investment & Commercial Bank of China (ICBC), will serve as the correspondent bankat the China end for the swap deal.According to the CBN governor, the deal would make Naira available to Chinese businesses. In return, supply of Chinese currency (RMB) would be guaranteed for their Nigerian counterparts, to boost speed, convenience and volume of transactions between the two countries.
An analysis by a credit rating, finance and economics agency, Bode Agusto & Co., said the N900 billion to be received by PCB underthe swap deal would increase its Naira assets base, while cutting its RMB savings by the equivalent amount.The Chinese government would then utilise the funds to give out loans to interested Chinese businesses in Nigeria at concessional interest rates (usually single digits) to enable them carry out their contractual and trade obligations.This arrangement would not only boost the competitiveness of Chinese businesses in Nigeria, it would equally deepen their operations in the country.The arrangement would not only eliminate threats of abandoned projects due to funding challenges, it would boost the capacity to provide critical infrastructure that increase growth in key sectors of the economy, enhance productivity and accelerate job creation efforts.