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Bilateral Currency Swap Agreement Between Nigeria And China

The BCSA window is a commendable step for the CBN. If this window is properly implemented by the CBN and used effectively by importers, it could only be a policy that will successfully reduce the pressure on the Naira exchange rate, reduce the influence of the third monetary transaction (USD) while easing trade between Nigeria and China. The most important thing is that the government should focus not only on imports, but also, to a large extent, on exports, so that there is a trade balance between Nigeria and China. The agreement, which marked a year of implementation last month, was signed on April 27, 2018 to reduce demand pressure on the country`s foreign exchange supply. 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. 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. LAGOS, May 3 (Reuters) – Nigeria`s central bank said on Thursday it had signed a $2.5 billion currency exchange agreement with the People`s Bank of China to facilitate trade between the two countries and improve the management of foreign exchange reserves. The currency exchange agreement between Nigeria and China is important in many ways. Earlier, the Central Bank of China said it had signed a bilateral agreement with Nigeria of 15 billion yuan for a three-year currency exchange. Nigeria added the yuan in 2011 as part of its monetary reserve and entered into a swap agreement with Industry and Commercial Bank of China Ltd (ICBC), the world`s largest lender, in 2016.

According to them, the agreement will allow trade between the two countries directly in their local currencies, without the need for the US dollar, and allow the renminbi (yuan) to move freely within the Nigerian banking system. Local traders on Thursday said demand pressures are mounting in the foreign exchange market, as some companies repatriate dividends after the end of the earnings season, coupled with importers who buy foreign products to resell at home. Since the inception of the BCSA, there have been differences of opinion on the implementation of the agreement. Billy Gillis-Harry, Chairman of the South-South Coalition of the House Despite the concerns expressed, we believe that the money swap agreement is a step in the right direction. The decline in dollar demand, which must be achieved through the swap agreement, will complement CBN`s current intervention through the investor and exporter exchange window to deepen market stability by limiting the impact of dollar shortages and exchange rate volatility. We also note that the NGN/CNY swap agreement will be particularly favourable to Nigeria`s foreign exchange reserves, which have been increasing steadily since some degree of stability returned to the country`s daily crude oil production and international oil prices triggered a northern movement. In this context, the Central Bank of Nigeria (CBN) has concluded a bilateral currency exchange agreement (BCSA) with the People`s Bank of China (PBoC). The agreement was finally signed on Friday, April 27, 2018, making Nigeria the third African country to have a monetary sweapage agreement with the People`s Bank of China. 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. The availability of the Chinese currency, Okorafor said, eased the pressure on the foreign exchange market

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