Nigeria,Sierra Leone Plan Currency Swap
By Walpole Robert
The Governor of Bank of Sierra Leone who is also the Chairman of ECOWAS Committee of Governors of Central Banks,Professor kelfala kallon has disclosed of a plan for currency swap between Nigeria and Sierra Leone.
Speaking about efforts to integrate Nigeria and Sierra Leone economies ,Kallon decried the increasing dollarisation of West African economies and consequent depreciation of national currencies in the region,noting that Sierra Leone has decided to go ahead with the swap policy with Nigeria as its leading economic partner.
The bank governor who noted that the Sierra Leonean financial sector is dominated by Nigerian banks and institutions said the policy will benefit both countries by removing dollar as a factor in the trade between both countries.
“We are engaged in deep discussions with my brother,Godwin Emefiele and we are forming up the plan.And we will take the plan further.
“Since Nigeria already has a currency swap arrangement with China,Sierra Leone will key into that arrangement. Sierra Leonean import from China can now be done with Naira.This is why we are really interested in the immediate swap deal between Nigeria and Freetown”,the bank Chief said.
Prof Kallon used the following analogy on how the proposed swap deal will work:
“For instance, a Sierra Leonean trader coming to Conakry would go into the
parallel foreign exchange market in Sierra Leone to acquire dollars (at a premium, most times) to bring to Conakry to convert into Guinean francs (mostly at a discount) in order to purchase her wares.
“This transaction then increases the demand for dollars in Sierra Leone and its supply in Guinea. The result would be a depreciation of the Leone against both the
dollar and the Guinean franc and the appreciation of the Guinean franc against both the Leone and the dollar. When the transaction is reversed (with a Guinean trader going to Freetown to purchase rice, for example), the fortunes of the Leone and Guinean franc would be reversed relative to each other and to the dollar.
” This artificially-induced depreciation of our
currencies then creates an expectation of future depreciations, which promotes speculation-induced hoarding of dollars. Like negative shocks, this adversely impacts macroeconomic stability in the region.
” We can mitigate against these outcomes by holding each other’s currencies as reserves to facilitate intra-ECOWAS trade. Under such an arrangement, the Sierra Leonean trader coming to Conakry would now have access to Guinean francs before leaving Sierra Leone, thus obviating the need for her to buy dollars at a premium in Freetown.
“Her Guinean counterpart will now have access to Leones before he leaves for Sierra Leone. Consequently, intra-ECOWAS trade would have no significant impact on the exchange rates of both the Leone and the Guinean franc relative to the dollar”,the bank Chief noted.
Checks by Sahel Standard however showed that the policy is still under planning and consultation between the two countries.
It would be recalled that the Central Bank of Nigeria (CBN) and Peoples Bank of China (PBoC) had in 2018 agreed on a currency swap worth $2.5 billion to reduce their reliance on the U.S. dollar in bilateral trade.
CBN Governor Godwin Emefiele led Nigerian officials, while the PBoC governor, Yi Gang, led the Chinese team to the signing ceremony in Beijing last week.
The agreement is aimed at providing sufficient local currency liquidity for Nigerian and Chinese industrialists and other businesses and to reduce difficulties as they search for a third currency.
The deal, purely an exchange of currencies, also will make it easier for Chinese manufacturers seeking to buy raw materials from Nigeria to obtain naira, the Nigerian currency, from Chinese banks to pay for their imports.