Nigeria Central Bank Chief sees China yuan becoming reserve currency

BEIJING: China's yuan will inevitably become a global reserve currency, Nigeria's central bank governor said on Tuesday,

A day after Nigeria said it would diversify a tenth of its $33 billion foreign exchange reserves away from the dollar and into the yuan, Lamido Sanusi said Beijing would allow the Nigerian government to use yuan to buy yuan-denominated bonds in Hong Kong and Shanghai.

Welcoming the access that Nigeria gets to China's tightly controlled capital markets, Sanusi said his nation may allow Beijing to settle its oil purchases from Nigeria in yuan, and that the two countries may set up a currency swap, although he did not say how big it might be.

"There is already renminbi being traded on the streets of Nigeria, so this shows the market is ahead of us and we are just catching up," Sanusi told reporters in Beijing, noting that China is making the yuan more convertible.

The renminbi is another name for the yuan.

Dressed in a grey-checked Nehru jacket, Sanusi, whose father was Nigeria's first ambassador to China in 1972, said he looks forward to China investing more in his country, especially in the energy, agriculture and processing sectors.

"The US debt crisis has added a sense of urgency" to Nigeria's decision to diversify its reserves away from the dollar, Sanusi said. Presently, 79 percent of Nigeria's reserves are invested in dollars, he said.

"(It) appears to me there is less and less appetite for holding dollars," he said.

Global stock markets were roiled last month after Standard & Poor's stripped the United States' of its AAA debt rating, fuelling some investor fears that the dollar may be debased in the long run owing to America's yawning deficit. However, US credit markets actually strengthened as investors flocked to US Treasuries as safe haven investments.

A weaker dollar hurts China since it is heavily invested in the dollar too. About two-thirds of China's $3.2 trillion reserves are estimated by some economists to be parked in the US currency.

But at the same time, China wants the yuan to benefit from a weaker dollar by increasing its use in international trade and investment. To that end, Beijing has made it slightly easier during the past year for foreign investors to hold yuan.

Copyright Reuters, 2011

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