$2.5 Billion Swap Deal – Do You Have Your Chinese Visa?

$2.5 Billion Swap Deal – Do You Have Your Chinese Visa?

I was a banker and I know good deals when I see them. China is on a mission: surgically displace London and New York as the global centers of commerce. London scored an own goal with Brexit [why bother the man that wants to run into his house to carry a bag to the palace?]. People, leave London alone; they do not want the world and certainly they do not deserve to enjoy fees on global movement of money. New York? Ask Mr. Trump his plans.

As UK and U.S. look inwards, China is creating a new nexus in the world. The convergence is Beijing which will assume its old position. In the last ten centuries, China has dominated global GDP in at least 7 of them – India had one, UK got effervescence and US ruled the 20th century when it took over from UK late 1890.

China has signed a deal with Nigeria on currency swap. It is a big one at $2.5 billion.

The Central Bank of Nigeria (CBN) on Wednesday announced the execution of a $2.5 billion bilateral currency swap agreement with the Peoples Bank of China (PBoC) to boost local currency liquidity in the economy.

CBN governor, Godwin Emefiele, led the Nigerian delegation to sign the agreement on behalf of the federal government, while PBoC Governor, Yi Gang, led the Chinese team at a ceremony in Beijing, China, at the end of negotiations on Friday, April 27.

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“With the operationalisation of this agreement, it will make it easier for most Nigerian manufacturers, especially small and medium enterprises (SMEs) and cottage industries in manufacturing and export businesses to import raw materials, spare-parts and simple machinery to undertake their businesses.

“They will take advantage of available RMB liquidity from Nigerian banks without being exposed to the difficulties of seeking other scarce foreign currencies, which attract higher interest rate charges,” he said.

Simply, if you want to buy something from China, you do not need to look for U.S. dollars. You give your bank Naira, and the bank of your Chinese customer will give the company RMB (Chinese money). No money moves across the border as our central bank and the Chinese equivalent will handle all. With that, no one will bother London and New York because no money moved across any bother. That is the new Silk Road [The Belt and Road Initiative] China is building. It will come through displacement of the old trade routes.

“Indeed, the deal will protect Nigerian business people from the harsh effects of third currency fluctuations. With this, Nigeria becomes the third African country to have such an agreement in place with the PBoC,” [CBN spokesman[ said.

Implications

With the ease this swap deal will bring to Nigerian companies, there is no reason for any company to buy something which can be found in China in any other place. Going forward, dealing with Chinese partners would be as simple as paying a local Nigerian company. This is significant and more Nigerian importers and manufactures will certainly bias to buy from China. All the troubles of dollars, pounds sterling and euro will fade at least in one area.


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7 thoughts on “$2.5 Billion Swap Deal – Do You Have Your Chinese Visa?

    1. There are two things to look here. (1) CBN will make it easier to import raw materials. Presently, CBN policy allows banks to finance at good forex rate for only raw materials. (2) CBN may not cover importation of non-raw materials with this deal. So, if you are importing toothpicks, you may have to source USD and Euro. I am very confident that this will apply to only raw materials. And if that is the case, our manufacturing will be better for it.

      Reply
  1. Hello Prof,
    This is a good initiative but how will this work for SMEs that import fashion products for sale in Nigeria when the tax/duty on imported fashion products are very high and these products are still considered contraband?

    Reply
  2. The advantage is clear. However, for sustainable mutual benefits, there must be equilibrium in the balance of trade, otherwise, the RMB liquidity $2.5Billion dollars will wipe-off in no time once Nigerian businesses, where we are already a net-importer of Chinese goods and services, begins to make more demands on RMB for import purposes, than Chinese are making of NGN. Thus a balance of payment crisis arises.

    Reply
  3. Its instructive that the English waged the first Opium war against the Chinese in 1839 for crush their british drug trafficking network and seizing its dope..payback is a ….

    Reply

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