Nigeria: Chinese Yuan to become reserve currency

The Nigerian government and its central bank have made a bold decision that signifies our maturity as an independent nation and confidence in our ability to make choices in the interest of our peoples and nation. The Nigeria Central Bank Governor, Lamido Sanusi, today, Tuesday 6^th September 2011, announced plans to invest between 5-10% of our foreign exchange reserves in China’s currency – the Renminbi (RMB) or Yuan. Until this announcement, the Nigerian government has kept its reserves in the US Dollar, The Pound Sterling and the Euro. Nigeria’s total foreign exchange reserve stands at between $32 – 36 billion of which 79% is currently invested in US Dollars. The central bank will also look at investment opportunities in the offshore yuan market in Hong Kong, where the currency is fully convertible. In a press briefing in Beijing, Mr Sanusi said:

 ”We will continue with our efforts and are close to…taking the RMB as part of Nigeria’s foreign exchange reserve currencies…A few years ago, we made a strategic decision to consider adding the Renminbi to the basket of reserves,”
“A number of countries are participating in the RMB market in Asia and the Latin America, and we are pleased to be the first African country to take the step of joining this group of countries that recognize the importance of China to the world economy”.
“Today in Nigeria, the RMB is being exchanged on the street for the Naira (Nigerian currency) so the market is already ahead of regulator, we are just going to catch up with them officially getting involved in the transactions”.

A reserve currency or anchor currency is “A foreign currency held by central banks and other major financial institutions as a means to pay off international debt obligations, or to influence their domestic exchange rate. A large percentage of commodities, such as gold and oil, are usually priced in the reserve currency, causing other countries to hold this currency to pay for these goods.  Holding currency reserves, therefore, minimizes exchange rate risk, as the purchasing nation will not have to exchange their currency for the current reserve currency in order to make the purchase” (investopedia.com).  Until lately, the US Dollar is considered the world’s reserve currency.  The Dollar’s influence is heightened and sustained particularly as most commodities, such as oil and gold, are priced in Dollars.  On 5th of August 2011, Standard & Poor’s, a United States-based financial services company, down-grounded the credit rating of USA from AAA to AA+, citing political risks and debt burden as the reasons. In a press statement it said:

We have lowered our long-term sovereign credit rating on the United States of America to ‘AA+’ from ‘AAA’ and affirmed the ‘A-1+’ short-term rating.
More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating on April 18, 2011.

Standard & Poor’s

In March 2009, Zhou Xiaochuan, governor of the People’s Bank of China, set off alarm bell in the forex land by proposing using the Special Drawing Rights (SDRs) as an international reserve currency in place of the Dollars – a move supported by Russia and briefly by the US Treasury secretary, Timothy Geithner (FT, 2009). In April 2009, “the G20 authorised the IMF to issue $250 billion in new SDRs to boost the foreign reserves of IMF members”.  The SDR was created in 1969 by the IMF as a tool for supporting the fixed exchange system but following the demise of the Brenton Woods agreement in favour of the US Dollar, SDR faded off. SDR is an artificial currency and an “international reserve asset, created by the IMF in 1969 to supplement the existing official reserves of member countries. The SDR also serves as the unit of account of the IMF and some other international organizations” (IMF). The Gulf states have also been considering floating a single petro-currency. As you can see, the move away from US Dollars towards a reserve basket of currencies has been simmering long before now.
The recent downgrade of US debt, the debt turmoil in the European economies, the predator attitude and resurgence of strategic appetite for colonial dominance, as displayed over Libya, a sovereign African nation, by Europe and America, are enough reasons for any responsible African government to start considering diversifying its foreign exchange reserves and economic interests. Nigeria is second largest economy on the African continent, with the resources (material and manpower), to spearhead the total liberation of Africa. Nigerians should be proud of their heritage as a proud and fearless nation. China is better placed than the US to provide a reserve currency for the 21st century because it has a large current account surplus, focused government and few of the economic worries the US faces (Professor Roubini, of New York University’s Stern business school). “China has already signed  currency swap deals with Singapore, South Korea, Malaysia, Indonesia and Argentina, among others. It holds more than $3.2trillion (20.6tn yuan; £2tn) in foreign exchange reserves, of which 70% is estimated to be in US dollars” (BBC).
China controls a large market share of world trade and is a major exporter and manufacturer, as well as a major importer of commodities from developing countries. It has non-intrusive policy towards other countries and a genuine desire to contribute to the development of African countries. Well done, President Goodluck and Governor Lamido. It is worth noting that on record is the view that Gadhafi’s initiation of a move to reject the US dollar and the Euro in place of a new common currency (Gold Dina) for Arab and African nations may be part of his down fall. “During the past year, the idea was approved by many Arab and most African countries…The initiative was viewed negatively by the USA and the European Union; but Gadhafi was not swayed and continued his push for the creation of a united Africa” (Brown, 2011).   So, having made the decision to adopt Yuan as a reserve currency, it is important the government strengthens our national security at every level and if need be, sign defense pact with China and Russia. Nigeria is a great power in Africa, with unity and transformed mindsets, no nation or people will dare take us for a ride.
It is important to remind Nigerians too that despite the US Dollar difficulties in recent times, the Chinese Renminbi is still some years off overtaking the Dollar as the world reserve currency.  “At present China’s currency is used to settle only a tiny fraction of the nation’s trade. Chinese leaders would, of course, be delighted if the renminbi could be used to settle half of their trade within the current decade. But to reach that goal China has first to jump over another big hurdle: full liberalisation of its capital account, where China’s authorities seem determined to take a slow pace in making the renminbi fully convertible” (Prof Yao Yang, ft.com).
It may interest you to note that Governor Sanusi’s father was Nigeria’s first ambassador to China in 1972 (China Daily).