The Central Bank of Nigeria (CBN) on Friday asked lenders to submit bids for the Chinese yuan, traders said.
This will be the apex bank’s first auction after it agreed a $2.5 billion swap with its Chinese counterpart in May.
Nigeria is Africa’s biggest nation by population and its largest economy due to its oil exports but it lacks a manufacturing base so it relies on imports to serve its consumption needs and that leads to dollar dependence.
The auction is part of an attempt to encourage the use of an alternative trading currency, particularly given the high level of imports from China, which amounted to $2 billion last year.
Traders cited a CBN memo to lenders and said the auction would be for spot and forward settlement and the exchange rate will be determined by a book building process. The bank said it will receive bids between 0800 and 1100 GMT.
Earlier this month, CBN officials held a town hall meeting with businesses to introduce the yuan as an alternative to the dollar for imports from China ahead of plans to start auctioning the Asian currency.
The dollar is Nigeria’s main trade currency. The OPEC member suffered severe dollar shortages after the price of crude oil, its top export and main source of FX, plunged in late 2014, prompting it to introduce capital controls in 2015.
It now has multiple exchange rates against the U.S. currency and has been selling the dollar on the interbank market to boost liquidity after floating the naira for investors.
It has since signed a three-year currency swap agreement with the Chinese central bank to facilitate trade between the two countries and enhance its foreign reserve management.
The bank said the auction is dedicated to payments for letters of credit denominated in yuan for import of raw materials and machineries and agriculture.
Nigeria has tried several options to curb pressure on the naira. But some of its plans may require time as it needs to develop its economy to cut imports.
The naira has been relatively stable against the dollar at a range of N361 and N362, as an over-the-counter trading system used by lenders mask liquidity pressures on the currency, traders said.
The currency is quoted at around N305 per dollar on the official interbank currency market which is supported by central bank’s regular intervention.