Currency Swap: CBN Woos Importers, Offers Incentives On Chinese Yuan
BY CHINYERE OBIORA, LAGOS – The Central Bank of Nigeria (CBN) is offering incentives to importers that open transaction invoices in Renminbi instead of the US dollars.
Renminbi literally means the ‘people’s currency’ and is the official currency of the People’s Republic of China. Abbreviated as RMB, it is also called Chinese Yuan.
The apex bank also disclosed that over the next three years, over 40 million hitherto excluded Nigerians would be brought on board the nation’s financial system as part of efforts to meet up with the 2020 financial inclusion target.
Speaking with journalists after Bankers’ Committee meeting in Lagos, the Chief Executive Officer (CEO) of Stanbic IBTC, Demola Segunle said CBN has already issued regulatory framework for transactions with authorised dealers in Renminbi to kick-start its incentives regime for importers.
Segunle explained that encouraging importers to pay for machineries, equipment and goods in Renminbi will further strengthen Nigeria’s foreign exchange reserves.
According to him, importers bringing invoices in Renminbi will always receive a percentage spread on their payments, adding that the decision, jointly taken by the CBN and the Bankers Committee, is to encourage importers to receive invoices in Chinese yuan rather than the dollars.
“One of the incentives will be that a percentage spread which is yet to be determined will be given to any importer that is bringing renminbi invoice for settlement instead of bringing dollar invoice so that when you look at the overall cost in terms of Naira, if you bring Renminbi invoice it is going to be cheaper for the importer”, Segunle said.
In his comments, the Managing Director of Keystone Bank, Abeahon Ohiwerei, said the proposed percentage spread will be aside the reduction cost in mark up prices when invoices are issued in dollars.
He further explained that; “anytime invoices are obtained in dollars for an import from China, there is usually a 10 per cent mark up, so that 10 per cent, is a plus for the importer.”
Recently, the CBN signed a currency swap agreement with China that gives Nigeria access to 15 billion RMB. This development means that importers with invoices in Renminbi will now pay less Naira value than their counterparts that import from China with dollarized invoices.
Also speaking at the briefing, Director, Banking Supervision, CBN, Mr Ahmad Abdullahi said Nigeria’s external reserves has grown to $48 billion, assuring that the current figure has the capacity to defend the Naira ahead of expected outflow of foreign exchange on the back of the rate hike by the United States Federal Reserve
He said despite the varied signals in the economy, the CBN will continue to confidently defend the Naira, adding that notwithstanding the rise in Fed’s rates; global trade war; a cut in tax by the United States government and its attendant effect, which may include outflow of capital form the Nigerian economy, “the CBN is prepared for any outflow.”
Similarly, the Managing Director of United Bank for Africa (UBA), Kennedy Uzoka, described the country’s external reserves as remarkably high, adding that “regardless of the messages that we are getting from abroad that things are getting in the reverse, Nigeria, with the good work of the CBN, has been able to manage it and we are now in a good position to manage the forex market development.”
Meanwhile, by the CBN’s regulatory framework, the Bilateral Currency Swap (BCS) shall be used to finance trade and credit investment between the People Republic of China (PRC) and Federal Republic of Nigeria (FRN); maintain financial market stability; and for other purposes that both parties may agree upon.
In respect of access to the CBN bi-weekly Renminbi bidding, the apex bank said all authorised dealers shall open Renminbi accounts with correspondent banks and avail the CBN with their Renminbi account details that may either be with a bank on shore or offshore China.
Furthermore, the guideline said forex purchased in the window shall not be used for payments on transactions in which the beneficiaries are not in China, stressing that authorised dealers shall not open domiciliary accounts dominated in Renminbi for customers.
On the regulator’s interventions, the guidelines said the CBN may conduct bi-weekly Renminbi bidding sessions, and the sale of Renminbi shall be applicable only to trade backed transactions.
