Emefiele: Why Yuan Currency Swap Will Reduce Pressure on Forex Market

  • FG proposes RMB50bn under deal
  • CBN dollar sale to banks drops to $178m on IOCs’ direct forex sales to oil marketers

By Obinna Chima

Central Bank of Nigeria (CBN) Governor, Mr. Godwin Ifeanyi Emefiele, has expressed optimism that the agreement reached between Nigeria and China last week on a currency swap will strengthen the naira and help reduce the strong demand for the US dollar in the country.

President Muhammadu Buhari last week travelled with a high-level government delegation to China where he signed a $6 billion deal to fund joint infrastructure projects.

During Buhari’s visit to Beijing, the Industrial and Commercial Bank of China Ltd (ICBC), the world’s biggest lender, and Nigeria’s central bank signed a deal on yuan transactions.

“It means that the renminbi (yuan) is free to flow among different banks in Nigeria, and the renminbi has been included in the foreign exchange reserves of Nigeria,” Lin Songtian, Director General of the African Affairs Department of China’s foreign ministry, told reporters.

The agreement was reached following a meeting between Buhari and Chinese President Xi Jinping.

The move came after Finance Minister, Mrs. Kemi Adeosun, said recently that Nigeria was looking at Chinese panda bonds – yuan-denominated bonds sold by overseas entities on the mainland – adding that they would be cheaper than Eurobonds.

Nigeria’s central bank has said it plans to diversify its foreign exchange reserves away from the dollar by switching a stockpile into yuan. It converted up to a tenth of its reserves into yuan five years ago.

Lin said a framework on currency swaps had been agreed with Nigeria, making it easier to settle trade deals in yuan.

Throwing more light on the currency swap, Emefiele said in a phone interview with THISDAY yesterday that Nigeria was not the only country that had agreed to a currency swap with China, as several other countries – developed and emerging markets – with growing trade volumes with China had entered into similar currency swaps with the Asian country.

He said as the second largest economy in the world, more and more countries are turning to China for business, as the country seeks to make its currency a convertible global currency like the US dollar, the euro, the Japanese yen and British pound sterling.

To buttress Emefiele’s point, information provided by the Peoples Bank of China (PBOC; China’s central bank) showed that China had bilateral currency swap agreements with 31 central banks for varying sums at the end of 2015.

The countries are the United Kingdom, Belarus, Malaysia, South Africa, Australia, Armenia, Surinam, Hong Kong, Pakistan, Thailand, Kazakhstan, South Korea, Canada, Qatar, Russia, the European Union, Sri Lanka, Mongolia, New Zealand, Argentina, Switzerland, Iceland, Albania, Hungary, Brazil, Singapore, Turkey, Ukraine, Indonesia, Uzbekistan, and the United Arab Emirates, totalling RMB3.137 trillion.

China has a trade volume of RMB10.747 trillion with the 31 countries with which it has currency swaps.

Emefiele said: “The agreement on the currency swap with China will definitely benefit Nigeria because the essence of the mandate is to ensure that Nigeria is designated as the trading hub with China in the West African sub-region for people who want the renminbi as a currency denomination.

“Also for us, we believe that using the renminbi will improve trade with China, as this will encourage importers to open L/Cs in the Chinese currency for the importation of raw materials, equipment and machinery from China, rather than other trading regions, so the agreement will encourage trade between both countries.”

But when reminded that trade between Nigeria and China was skewed heavily in the favour of China, he said: “On the reverse, we are working to encourage the export of raw materials to China in order to reduce the trade imbalance.

“And we aim to become competitive by improving on infrastructure especially in the area of electricity and ensuring that credit is made available to manufacturers at concessionary rates.”

Emefiele, however, declined to reveal how much Nigeria had proposed under the currency swap with China, saying that talks were still ongoing with the PBOC and would be concluded in the next few weeks.

But a source in the presidency conversant with talks revealed that the CBN had proposed a swap of RMB50 billion, about N1.98 trillion ($10 billion).

“The Peoples Bank of China, however, is unlikely to agree to what was proposed, so we are looking at a swap somewhere in the region of RMB20 billon which is about N792 billion to N990 billion ($4 billion to $5 billion),” the source revealed.

On the volume of trade between Nigeria and China, investigations by THISDAY showed that Nigeria’s trade with the Asian giant has grown in leaps and bounds compared with nine other major trading partners.

For instance, in 2014, while Nigeria’s estimated trade volume with China alone was $11.76 billion, the country’s (Nigeria) trade volume with United States, Britain, France, Germany, Turkey, India, Japan, Italy and South Africa combined was $66.8 billion (see table for breakdown on page 1).

This showed that relative to the nine countries, Nigeria’s trade volume alone with China accounted for 15 per cent of the total trade with Nigeria’s major trading partners.

In 2015, Nigeria’s trade volume with China rose to $14.94 billion, representing 22.2 per cent of $78.56 billion of Nigeria’s total trade with eight of its major trading partners. Data on trade with South Africa in 2015 was not available.

But from the latest available figures, the trade imbalance between Nigeria and China is significant, as Nigeria is a major export market for China, absorbing $16.9 billion worth of Chinese goods in 2014. China does also buy some Nigerian crude, but it’s a lot less – $2.4 billion in 2014 (and probably half that today).

Commenting on the currency swap, the chief executive of Financial Derivatives Company (FDC) Limited, Mr. Bismarck Rewane, cautioned that what the deal has done is “to concentrate your trade in the hands of one country”.

“With the deal, Nigeria will be using the yuan to import from China, while they (China) will use the naira to buy crude oil from Nigeria. And then they (China) will take the oil to sell in the market to get dollars.

“So Nigeria’s dollar income will reduce and its imports from the rest of the world would also reduce. So Nigeria will be more dependent on China. That is all,” Rewane said.

Rewane also disagreed with the CBN governor on the impact of the swap on the naira, stressing that the effect would be neutral.

“It doesn’t change anything. The man who is going to import from the US, or the man who is going to import a car from Germany, will he need yuan to buy it. We are only playing with mirrors. It does not increase the actual flow of dollars to Nigeria. It only means that our trade is more concentrated in Chinese goods and the Chinese with the naira they get from Nigeria when they buy oil,” the FDC boss added.

But another economic analyst who did not want to be named, welcomed the currency swap, noting that in seeking foreign aid for the country, Nigeria’s policy makers over the years had allowed themselves “to be led into a blind alley by Nigeria’s Western masters and mentors”.

He was of the opinion that by widening the scope of the country’s international friendship and in particular by the establishment of diplomatic, cultural, trade and other mutually beneficial relations with China, Nigeria had taken the right step.

“The foreign policy of Nigeria should be independent and should be guided by the following principles: the promotion of economic relations with all nations of the world; co-operation with all nations of the world in so far as they respect the ideals for which we stand; respect for the sovereignty of nations and non-interference in their domestic affairs; and attraction of foreign assistance (capital, technical skills and training opportunities for Nigerians) on the most advantageous terms,” he said.

Meanwhile, the CBN last week slashed the amount of dollars allocated to commercial and merchant banks to $177,876,814, compared with the $189,489,057 it allocated in the preceding week, as the country’s external reserves declined.

The country’s forex reserves which stood at $27.858 billion on April 1 depreciated by $408 million to $27.450 billion last Thursday.

The decline in forex allocation to the banks by the CBN was attributed to the deal struck by the Nigerian National Petroleum Corporation (NNPC) and international oil companies (IOCs) on direct dollar sales to oil marketing firms aimed at addressing the fuel shortage in the country.

Of the $177.9 million sold to 15 commercial and two merchant banks, Standard Chartered Bank Nigeria with a total of $18,652,838 received the highest allocation of forex from the central bank.

The bank sold the greenback to 227 customers comprising those importing industrial raw materials and others who paid for school fees overseas, among others.

Standard Chartered was closely followed by Zenith Bank, which was allotted $16,691,793. Zenith Bank had a total of 372 corporate and individual customers on its list.

Also, Stanbic IBTC with an allotment of $15,908,026 came in third. Just like the previous weeks, 51 customers that featured on Stanbic IBTC’s list purchased dollars from the bank to exit Nigeria’s bond and equities markets.

Guaranty Trust Bank Plc (GTB) with $14,808,285 held the fourth slot, FirstBank Nigeria with $14,163,477 occupied the fifth position, while Diamond Bank with returns of $13,819,849 followed in sixth place.

First City Monument Bank Limited held the seventh position with returns of $13,358,243 reported last week, while Ecobank Nigeria occupied the eighth position with returns of $13,252,922.

An assessment of its forex sales to customers during the week showed that Diamond Bank had a total of 310 corporate and individual customers. Some of its major customers that bought large chunks of forex included Dangote Cement ($2.552 million), Bua Sugar Refinery Limited ($1 million) and Dozzy Oil and Gas ($3.167 million).​


  Country 2014 ($’bn) 2015($’bn)
1 China 11.76 14.94
2 India 17.75 16.36
3 USA 9.9 4.9
4 Britain 9.9 8.52
5 France 7.06 5.64
6 Japan 4.5 5.28
7 Italy 5.53 3.0
8 Germany 3.5 6.2
9 Turkey 2.7 2.5
10 South Africa 6.0 Not Available

Source: Embassy Trade Missions; Chambers of Commerce



Ranking Commercial Banks Amount ($)
1 Standard Chartered Bank 18,652,838
2 Zenith Bank 16,691,793
3 Stanbic IBTC 15,908,026
4 Guaranty Trust Bank 14,808,285
5 FirstBank Nigeria 14,163,477
6 Diamond Bank 13,819,849
7 FCMB 13,358,244
8 Ecobank Nigeria 13,252,922
9 Access Bank 12,947,266
10 UBA 10,723,899
11 Sterling Bank 7,708,198
12 Fidelity Bank 7,236,940
13 Union Bank 7,095,657
14 Wema 4,247,939
15 Unity Bank 2,993,684
                                              Merchant Banks
1 Coronation Merchant Bank 3,084,382
2 Rand Merchant Bank 1,183,415
                                              TOTAL 177,876,814

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