The Central Bank of Nigeria (CBN) and the People’s Bank of China (PBoC) have formally kick-started the Bilateral Currency Swap Agreement (BCSA) which was signed on April 27 this year in China.
A statement by the CBN’s spokesman, Isaac Okorafor today, Friday, said that the sales of foreign exchange in Chinese Yuan (CNY) would be through a combination of spot and short tenored forwards.
It added that the exercise, which would be Special Secondary Market Intervention Sales (SMIS) retail, would be dedicated to the payment of Renminbi denominated Letters of Credit for raw materials and machinery and agriculture.
The spokesman explained that the CBN would receive bids from all authorized dealers, saying that as a result of the peculiarity of the exercise, CBN would not be applying the relevant provisions of its Revised Guidelines for the Operation of the Inter-bank Foreign Exchange Market, which direct all SMIS bids to be submitted to the CBN through the Forex Primary Dealers (FXPDs).
According to Okorafor, the CBN would also not be applying the relevant provisions of the Guidelines which equally provide that “Spot FX sold to any particular end-user shall not exceed 1% of the overall available funds on offer at each SMIS session.”
Speaking on the bid period, he said that authorized Dealers should submit their customers’ bids from 9.00 am to 12.00 pm on Friday July 20, 2018, adding that bids received after this time would be disqualified.
On funding, he said that authorized dealers are to debit the customers’ accounts for the Naira equivalent of their bids, stressing that the CBN would debit authorized dealers’ current account on the day of intervention to the tune of the naira equivalent of their bid request.
Okorafor further explained that there would be no predetermined spread on the sale of FX Forwards by Authorized Dealers to end-users under the Special SMIS-Retail, adding that authorized Dealers would be allowed to earn 50 kobo on the customers’ bids.
According to the CBN spokesman, the bids would be on Spot FX basis as the Authorized Dealers’ accounts with the CBN would be debited in full for the Naira equivalent of the USD bid amount, even as he advised customers that are not willing to accept the settlement terms not to participate in this Special SMIS – Retail.
He said that forward bids would be settled through a multiple-price book building process and would cut-off at a marginal rate to be disclosed after the conclusion of the Special SMIS – Retail process.
He also urged customers not willing to accept the terms of the forward rate not to participate in this Special Chinese Yuan SMIS Intervention.
Okorafor emphasized that the CBN reserved the right not to make a sale if it had the impression that the exercise did not provide an effective price for the determination of the CNY/NGN exchange rate.