Saturday, September 24, 2011

Nigeria: Nation's Big Bet On Chinese Yuan

Nigeria's central bank will convert 10% of its $33-billion in foreign reserves to the Chinese yuan, as trade between the two countries continues to grow. TradeInvestNigeria asked Thabo Ncala, co-portfolio manager at Stanlib's Africa Fund whether the growing support for the yuan indicates waning confidence in the dollar.

Why does Nigeria consider China as a safe haven?

The primary reason countries keep reserves is largely for global trade, that is, to pay for imports even when their own currencies depreciate.

This is why many commentators liken foreign reserves to 'import cover'.

Historically, the major players in global trade have been the US, the UK and the Euro zone. Consequently, most countries keep reserves in the US Dollar, GB Pound and the Euro. However, these developed regions are no longer the leaders in global trade, as China is increasingly becoming a major force.

As at the end of 2010, China was Nigeria's largest source of imports (26% of its total imports). So, why does Nigeria need to first convert its currency to USD, then to the yuan? Why should Nigeria pay for imports from China in US Dollars? more