The Central Bank of Nigeria (CBN) Thursday released the operational guidelines for the $2.5 billion currency swap agreement between Nigeria and China.
The Peoples Bank of China (PBoC) – CBN) Bilateral Currency Swap (BCSA) regulations for transactions with authorised dealers in Renminbi, signed by CBN Director, Financial Markets Department, Alvan Ikoku, showed that commercial and merchant banks participating in the CBN bi-weekly Renminbi bidding are required to open Renminbi accounts with a correspondent bank in China.
The details of such accounts, which may either be with a bank onshore or offshore China, will be given to the CBN.
There will be no predetermined spread on Spot foreign exchange transactions executed through the CBN-Renminbi intervention. Authorised dealers may earn not more than 50 kobo on a customer’s bid, according to the guidelines.
The deal is aimed at providing adequate local currency liquidity for Nigerian and Chinese industrialists and other businesses in order to reduce their difficulties in the search for a third currency, mainly the United States dollar.
The guideline is backed by the statutory mandate of the CBN as set out by the CBN Act 2007. The BCSA is for a maximum amount of Chinese Yuan (CNY) 15 billion for N720 billion with a three-year tenor.
According to the guideline, the swap agreement allows for both banks to among other purposes, make available liquidity in their respective currencies for the facilitation and promotion of trade and investments across the two nations. This will be done through the purchase, sale and subsequent repurchase and resale of the Chinese Yuan (CNY) against naira and vice versa.
Also, the CBN, acting on the CBN Act, 2007, and Bank and Other Financial Institutions (BOFIA), issued regulations on the currency swap which mandated that funds from the policy should be used to finance trade, and direct investment between Nigeria and China.
The funds will also help to maintain financial market stability, and for other purposes that both parties may agree on.
According to the regulations for transactions with authorized dealers in Renminbi, importers intending to import from China shall obtain Proforma invoice denominated in Renminbi as part of the documents required for registration of Form ‘M’. Also, forex purchased in the window will not be used for payments on transactions in which the beneficiaries are not in China.
Authorised dealers, deposit money banks and merchant banks, shall not open domiciliary accounts denominated in Renminbi for customers. “Modes of payment shall be in line with memorandum nine of the foreign exchange manual showing that for letters of credit transactions, all negotiating documents and or shipping documents as may be applicable, must be routed from the beneficiary/ supplier through his/her bank to the issuing bank. For the avoidance of doubt, on no account must a bank endorse or pay on documents that do not comply with the routing outlined above,” the guideline showed.
It added that on bills for collection, documents must be routed to the issuing bank either directly from the supplier’s bank or through the offshore correspondent of the issuing bank. Also, the documents in respect of ‘Not Valid for forex transactions shall be routed by the supplier directly to the applicant’s bank that validates the underlying e-Form ‘M’.
Besides, the CBN may conduct bi-weekly Renminbi bidding sessions even as the Renminbi sales shall be applicable only to trade-backed transactions.
“Importers and exporters shall continue to pay applicable levies on imports and exports respectively while authorized dealers are required to utilize funds within 72 hours from the value date, failing which such funds must be returned to the CBN for repurchase at the bank’s buying rate. The CBN shall debit authorized dealers’ current account on the day of intervention with the naira equivalent of the Renminbi bid request. Bids shall be settled spot through a multiple-price book bidding process and will cut-off at a marginal rate to be disclosed after the conclusion of the Special SMIS-Retail process,” it added.
The CBN reserves the right not to make a sale if in its opinion, the exercise does not provide an effective price for the determination of the naira/ CNY exchange rate, in which case, the CBN may choose to offer another special Secondary Market Intervention Sales (SMIS) retail or wholesale session.
The CBN said the provisions of the regulation shall apply along with all existing CBN guidelines, circulars and directives on the operations of foreign exchange market. The regulation may also be amended from time to time as the bank may deem necessary.