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.