Three years after the Central Bank of Nigeria (CBN) signed a currency swap deal with the People's Bank of China (PBoC), Nigerians have yet to feel the effects of that deal, particularly the free fall of the naira, currently at N570 / 1 Dollar on the parallel market remains.
In April 2018, in June of the same year, the CBN published the settlement of a currency swap agreement in the amount of 2.5 billion US dollars; The aim was to facilitate trade between the two countries and improve the management of foreign exchange reserves.
But tongues have already begun to claim that the swap deal between the two countries for at least 15 billion yuan (renminbi) (equivalent to $ 2.4 billion in June 2018) of 720 billion nairas has not reached its target since it was sealed.
The bilateral currency exchange agreement (BCS) was inspired by trade facilitation. This should allow importers of goods from China to complete their transactions in yuan instead of US dollars) and vice versa.
This was done in order to reduce the demand for US dollars and ease the pressure on the naira at the time, in line with the management strategies of CBN Naira. As the CBN continued to introduce the BCS with the People's Bank of China through bi-monthly renminbi auctions, it became apparent that bureaucratic bottlenecks for dealers and importers doing business with China have become a major challenge.
According to CBN's financial market activity report for the first half of 2020, from the beginning to the end of June 2020, 1,746.40 million CNY or 89.12 billion naira was sold with CNY / 51.03 as the exchange rate (as of June 2020).
Before the deal, the CBN had been in discussions with China about the deal for more than two years. This made Nigeria the 3rd African country to sign the currency swap agreement with China after Egypt and South Africa.
The agreement should allow the two countries to exchange a total of 15 billion yuan (renminbi) for 720 billion nairas or vice versa for three years by China and the Nigerian federal government and to maintain the stability of the financial markets.
After the implementation of the initiative, the value of the national currency reacted to the news, among other things. The naira was sold at 48.6 N / CNY in January 2018 prior to the announcement and appreciated 494 basis points (4.94%) after the deal was signed and announced.
At the end of the year (2018) it increased by + 8.23%. In December 2020, the naira had lost -30.27% in value against the Chinese yuan compared to 2018 gains, due to demand for the yuan as the US dollar became even more expensive for trade, greater awareness for swap trading with China by traders, and adjustment of naira by the CBN during the reporting period.
Nonetheless, the CBN is yet to release the data that shows how much renminbi has been sold from July 2020 and now.
Proshare analysts expected the naira to depreciate further against the yuan as converting directly to Chinese currency for transactions in China would be cheaper than converting to US dollars and then converting to yuan for import/trade.
However, unnecessary delays, bureaucracy, and company bottlenecks in accessing the renminbi are the experience of most traders involved in doing business with Chinese companies.
In 2018, imports from China accounted for 25.12% of the country's total imports, while China was not among the top ten export destinations for Nigerian products. There was a drop to 20.49% in 2019, which contradicted analysts' expectations, as goods from China are expected to become cheaper due to the currency swap deal, thus increasing our imports from the country.
There was a recovery in 2020 that continued into the first quarter of 2021, accounting for 29.34% of total imports to Nigeria. Our export position with Nigeria also increased, accounting for 4.91% and 6.5% of total exports in 2020 and the first quarter of 2021, respectively.
The swap deal had the potential to improve the country's foreign exchange position as China accounts for a large part of our imports. However, implementation has always been a major hurdle for the Nigerian government, and this policy has proven not to be an exception, but a policy that has failed.
The target of N720-15 billion yuan to trade in three years was not met, traders and importers still owe the US dollar, then the yuan for trading with Chinese companies, which is expensive and raw material prices are constantly rising leaves. imported from China as operating costs are passed on to end-users, resulting in higher inflation. Additionally, the naira continues to depreciate against the US dollar (sold today at N570 / USD on the BDC market).
As the naira continues to depreciate against the dollar, some experts have voiced concern that the deal with China, which has been greeted with high hopes of bailing out the national currency, has not been sabotaged by regressive economic forces, according to an analyst.
According to Lukman Otunuga, senior analyst at FXTM, three years after its inception, the deal fell short as the same destructive forces that sabotage the naira are still in place. "A terrible combination of dollar scarcity, inflationary pressures, weak macroeconomic conditions, exposure to external risk, and multiple trades continues to weigh heavily on the local currency," he lamented.
Experts estimate that since nearly 70 percent of the country's imports come from China and Asia while only about 12 percent come from the United States, "then why dollars for doing business with China (then) over N360 for $ 1? From N56 .42 to the yuan?
At this rate, the yuan is around 642%, which is more than six times cheaper than the dollar in the forex market. The CBN announced in July 2018 in the circular from its director of the financial markets department, Dr, a term of three years.
Four banks, First Bank of Nigeria Limited, Stanbic IBTC, Standard Chartered Bank (SCB), and Zenith Bank Plc were previously designated as settlement banks for the transaction.
And in order for all authorized banks to have access to the bi-weekly Chinese currency auction, these brokers must “open Renminbi accounts with a correspondent bank and provide the CBN with their renminbi account details, which may be with an onshore or offshore bank in China”.
In April 2018, in June of the same year, the CBN published the settlement of a currency swap agreement in the amount of 2.5 billion US dollars; The aim was to facilitate trade between the two countries and improve the management of foreign exchange reserves.
But tongues have already begun to claim that the swap deal between the two countries for at least 15 billion yuan (renminbi) (equivalent to $ 2.4 billion in June 2018) of 720 billion nairas has not reached its target since it was sealed.
The bilateral currency exchange agreement (BCS) was inspired by trade facilitation. This should allow importers of goods from China to complete their transactions in yuan instead of US dollars) and vice versa.
This was done in order to reduce the demand for US dollars and ease the pressure on the naira at the time, in line with the management strategies of CBN Naira. As the CBN continued to introduce the BCS with the People's Bank of China through bi-monthly renminbi auctions, it became apparent that bureaucratic bottlenecks for dealers and importers doing business with China have become a major challenge.
According to CBN's financial market activity report for the first half of 2020, from the beginning to the end of June 2020, 1,746.40 million CNY or 89.12 billion naira was sold with CNY / 51.03 as the exchange rate (as of June 2020).
Before the deal, the CBN had been in discussions with China about the deal for more than two years. This made Nigeria the 3rd African country to sign the currency swap agreement with China after Egypt and South Africa.
The agreement should allow the two countries to exchange a total of 15 billion yuan (renminbi) for 720 billion nairas or vice versa for three years by China and the Nigerian federal government and to maintain the stability of the financial markets.
After the implementation of the initiative, the value of the national currency reacted to the news, among other things. The naira was sold at 48.6 N / CNY in January 2018 prior to the announcement and appreciated 494 basis points (4.94%) after the deal was signed and announced.
At the end of the year (2018) it increased by + 8.23%. In December 2020, the naira had lost -30.27% in value against the Chinese yuan compared to 2018 gains, due to demand for the yuan as the US dollar became even more expensive for trade, greater awareness for swap trading with China by traders, and adjustment of naira by the CBN during the reporting period.
Nonetheless, the CBN is yet to release the data that shows how much renminbi has been sold from July 2020 and now.
Proshare analysts expected the naira to depreciate further against the yuan as converting directly to Chinese currency for transactions in China would be cheaper than converting to US dollars and then converting to yuan for import/trade.
However, unnecessary delays, bureaucracy, and company bottlenecks in accessing the renminbi are the experience of most traders involved in doing business with Chinese companies.
In 2018, imports from China accounted for 25.12% of the country's total imports, while China was not among the top ten export destinations for Nigerian products. There was a drop to 20.49% in 2019, which contradicted analysts' expectations, as goods from China are expected to become cheaper due to the currency swap deal, thus increasing our imports from the country.
There was a recovery in 2020 that continued into the first quarter of 2021, accounting for 29.34% of total imports to Nigeria. Our export position with Nigeria also increased, accounting for 4.91% and 6.5% of total exports in 2020 and the first quarter of 2021, respectively.
The swap deal had the potential to improve the country's foreign exchange position as China accounts for a large part of our imports. However, implementation has always been a major hurdle for the Nigerian government, and this policy has proven not to be an exception, but a policy that has failed.
The target of N720-15 billion yuan to trade in three years was not met, traders and importers still owe the US dollar, then the yuan for trading with Chinese companies, which is expensive and raw material prices are constantly rising leaves. imported from China as operating costs are passed on to end-users, resulting in higher inflation. Additionally, the naira continues to depreciate against the US dollar (sold today at N570 / USD on the BDC market).
As the naira continues to depreciate against the dollar, some experts have voiced concern that the deal with China, which has been greeted with high hopes of bailing out the national currency, has not been sabotaged by regressive economic forces, according to an analyst.
According to Lukman Otunuga, senior analyst at FXTM, three years after its inception, the deal fell short as the same destructive forces that sabotage the naira are still in place. "A terrible combination of dollar scarcity, inflationary pressures, weak macroeconomic conditions, exposure to external risk, and multiple trades continues to weigh heavily on the local currency," he lamented.
Experts estimate that since nearly 70 percent of the country's imports come from China and Asia while only about 12 percent come from the United States, "then why dollars for doing business with China (then) over N360 for $ 1? From N56 .42 to the yuan?
At this rate, the yuan is around 642%, which is more than six times cheaper than the dollar in the forex market. The CBN announced in July 2018 in the circular from its director of the financial markets department, Dr, a term of three years.
Four banks, First Bank of Nigeria Limited, Stanbic IBTC, Standard Chartered Bank (SCB), and Zenith Bank Plc were previously designated as settlement banks for the transaction.
And in order for all authorized banks to have access to the bi-weekly Chinese currency auction, these brokers must “open Renminbi accounts with a correspondent bank and provide the CBN with their renminbi account details, which may be with an onshore or offshore bank in China”.