West Africa Rising: Nigeria shifting currency reserves from dollars to Chinese yuan(Read article summary)
Africa's top oil exporter will convert as much as 10 percent of its foreign cash reserves to the Chinese yuan as China's importance as a trade partner grows.
Nigerian Central Bank Governor Lamido Sanusi said in Beijing today that Africa's top oil exporter will convert as much as 10 percent of its $33 billion in foreign reserves from US dollars into Chinese yuan. Central banks use foreign reserves to manage their own currency's value.
In Nigeria's case, the up to $3.3 billion it may convert to yuan isn't an enormous sum – not, at least, for the oil-rich exporter. What is enormous, economists say, is what the bank's decision says: The yuan, pegged to the dollar until not long ago and managed more recently to keep Chinese exports cheap -- is turning into a global reserve currency. Africa – particularly West Africa – may be China's earliest, easiest zone of success.
The rise of China's yuan as a global currency – trusted by central banks, accepted by finance ministries, routinely used to purchase raw goods – is “inevitable,” Sanusi said, putting his mouth where his money is.
Coming from Africa's most dollar-denominated economy – dominated by Western oil companies – his vote of confidence is “a significant win” for the yuan, said Razia Kahn, economist at Standard Chartered-Bank.
“I don't think the symbolism should be lost on anyone," she says. “The fact that you have a major African oil producer saying we're going to diversify our reserves has a significance that can't be ignored. It's a goodwill gesture in the hope that it will lead to more Chinese investment in Nigeria."
The bank, Sanusi adds, is likely to orchestrate a currency swap with China, which would allow the Asian power to conduct more of its Nigeria dealings in its own currency, also called the renminbi.