CBN Plans Second Auction of Chinese Yuan after Currency Swap Deal

Chika Amanze-Nwachuku with agency report
The Central Bank of Nigeria has directed banks to submit bids for the Chinese yuan, in its second auction of the currency after a currency swap agreement with the People’s Bank of China (PBoC), Reuters quoted traders to have said yesterday.

The CBN in May signed a $2.5 billion three-year bilateral currency swap agreement with the PBoC to facilitate trade between the two countries.
It is expected that the currency swap deal will reduce pressure on the naira-dollar exchange rate by weaning Nigerian importers off the dollar.

The apex bank sold 69.86 million yuan ($10.16 million) in its first auction of the Chinese currency at a range of N49-N51.
Bids at the auction must be backed by customer invoices, with the exchange rate determined via a book building process, the newswire reported.

The CBN in a recent circular stated that for an authorised bank to access the bi-weekly auction of the Chinese currency, such dealers “shall open Renminbi accounts with a correspondent bank and advise it (CBN) with its Renminbi account details which may either be with a bank onshore or offshore China”.

It also directed importers intending to import from China to obtain proforma invoices denominated in Renminbi as part of the documents required for the registration of ‘Form M’.

The CBN also said that forex purchased in the window would not be used for payments on transactions in which the beneficiaries are not in China, adding that authorised dealers shall not open domiciliary accounts dominated in Renminbi for customers.
“For the purpose of this regulation, authorised dealers shall be deposit money banks and merchant banks”, the apex regulator said.

Announcing the commencement of the sale of foreign exchange in Chinese Yuan last month, CBN spokesperson, Isaac Okorafor, said that the sale shall be through a combination of spot and short-tenored requests.
The Special Secondary Market Intervention Sales (SMIS) retail, according to Okorafor would be dedicated to the payment of Renminbi denominated Letters of Credit (LCs) for raw materials and machinery and agriculture only.