CBN Converts More Dollar Reserves into Chinese Yuan

100 Yuan

Following continued relevance of China as a global financial player and western financial crises, the Central Bank of Nigeria has decised to convert more foreign reserves from the dollar into the Chinese renminbi or yuan.
The CBN had disclosed last March that it converted $500m of the country’s external reserves into the yuan in the previous six months and The Financial Times reported last month that the central banks of Nigeria and Tanzania joined their counterparts from other continents in adding more renminbi to their reserves.
Governor of the CBN, Mallam Lamido Sanusi, said the aim was to gradually increase the yuan holdings to 10 per cent of the reserves.
According to the Financial Times report, together, Nigeria and Tanzania bought bonds worth Rmb500m out of the Rmb2.5bn three-year issue from the China Development Bank, the Chinese state development lender.

Standard Bank, the South African bank with close Chinese ties, which handled the issue, said one fifth of the total bonds went to African investors in a “landmark bond sale.”

In a statement, the Managing Director, Standard Bank China, the Beijing arm, Bing Fan, said, “The internationalization of the renminbi is inevitable and Africa is a fertile soil and important front for this process. We believe that African central banks will become increasingly interested and involved in the offshore renminbi market.”

Nigeria, with $36.4bn in foreign exchange reserves, could become a significant buyer. Tanzania, with just $3.8bn, may trouble bankers rather less. But it is a country with growing trade and investment links with China.

Standard Bank, in which the Industrial and Commercial Bank of China has a 20 per cent stake, estimated two years ago that $100bn or 40 per cent of China’s trade with Africa would be facilitated in renminbi by 2015.

However, some continue to have their doubts about China’s bid to elevate its currency in global trade. Trust Chikohora, secretary general of COMESA business council, an economic integration lobby group, recently told reporters that emerging markets would be better off with “the current basket of currencies” for now.

“Although there is now talk in the Brics about moving towards using the yuan, I do not think that this is close to implementation,” he said.

Nonetheless, with China enjoying relatively low-cost renminbi funding on the continent, Fan maintained his position, saying he anticipated an increase in African deals with China.
When asked about the likelihood of African countries’ foreign reserves being dominated by the yuan rather than the dollar or euro, Fan replied, “We expect that in the next five years, roughly 20 per cent of the African total reserves of $500bn will go renminbi.

“As the dollar loses its value and the euro stands on the edge of the cliff, the renminbi has posed as the best choice at the moment for the African Central Bank reserve portfolio.”
Nigeria’s External reserves hit 25-month high High crude oil prices have continued to raise the level Nigeria’s foreign exchange reserves as figures rose to a 25-month high of $38.62bn by August 29.

The Nigerian National Petroleum Corporation said about 85 per cent of the increase in reserves was from crude oil. Nigeria’s crude oil production hit a record high of 2.7 million barrels per day on August 1.

The $38.62 billion figure was 5.81 per cent higher that the previous month.
The forex reserves stood at $36.5bn on same date last month and at N37.18bn on August 25 last year, the closest available comparable figure.

Reserves had risen by 5.71 per cent month-on-month to $38.51bn at August 28, 2012, from $36.43bn recorded a month earlier.

It showed that forex reserves rose to a two-year high of $38.51bn. The reserves have not been as high as this since August 10, 2010 when they stood at $38.59bn.Forex reserves had fallen by 1.4 per cent month-on-month to $36.40bn at July 25, from $36.93bn recorded a month earlier.

The $53m decline, according to analysts was attributed to falling oil prices and strong dollar demand.The reserves had plunged in the month of June, dropping by $1bn to $36.768bn on June 28, from $37.768bn it stood on June 6, 2012.

Forex reserves had risen to their highest in 21 months to $37.02bn by May 14, from $36.66bn at the end of April.The CBN had reportedly said that the nation’s external reserves had continued to grow since the August 1, 2012. Consequently, the Minister of Finance and coordinating minister for the economy, DrNgoziOkonjo-Iweala, stressed the need for the country to shore up its external reserves. At a meeting with the Organised Private Sector in Lagos recently, Okonjo-Iweala said that there was the need to build up the reserves to $50bn before December.

She said that this would help the country to stand on its feet in the event of any global economic recession. The CBN sold a total of $10.18bn at the Wholesale Dutch Auction System in the first half of this year.The CBN had sold and offered a total value of $14.85bn at the WDAS in the first quarter of last year. Forex sales were less than forex offered by $285m by half- year 2012.

Source: Economic Confidential



Please enter your comment!
Please enter your name here