Nigeria deals the dollar another blow
Sep 6, 2011 17:57 EDT
  inShare central banks | China | nigeria
By John Foley
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Imagine you get an email from someone claiming to be a Nigerian central banker. Yes, just imagine that. Your correspondent has heard that you are of sound character and good judgment, and is in search of a safe haven to store $3 billion in oil riches. In return you are offered untold goodies –- numerous investment opportunities and access to a huge potential market of middle-class consumers.

China is the lucky recipient of just such a communication. Nigeria’s central bank will transfer a tenth of its $33 billion foreign exchange holding into yuan assets, it said on Sept. 6. That fits with China’s ambition to turn its money into globally accepted tender that matches its status as the world’s second-biggest economy. It also deals another blow to the U.S. dollar’s status as the world’s reserve currency.

Nigeria isn’t the first to dip a toe into China’s yuan pool. The Philippines and Hong Kong too have discussed expanding yuan reserves, presumably to chase political favour and capture long-term currency appreciation. Investible assets aren’t easy to find, since China has barely any external debt. But central banks can invest in China’s interbank market, as Malaysia did in 2010, on a case by case basis.

Despite Nigeria’s bold move, China’s currency still has few of the qualities of a credible reserve currency. Low inflation is usually a pre-requisite, yet China’s runs at above 6 percent. Stable monetary policy is another typical condition, yet China lacks an independent central bank. Most importantly, China’s capital controls make it hard to see how holder of yuan reserve assets can liquidate them in a crisis.

Nigeria probably has other priorities, such as continued Chinese investment. The Middle Kingdom has been a keen partner for the oil-rich nation. Among other things it has signed a $23 billion agreement to build three oil refineries -– though little of that has yet been spent. Nigeria’s foreign investment fell to a five-year low in 2010, helped by a hostile business climate, endemic corruption and uncertainty around mired oil sector reforms. Nigeria’s yuan purchase looks more like a gesture of goodwill than a shrewd economic decision.

It would be a mistake to read too much significance into the move. But growing support for yuan reserves does represent another cut of confidence in the dollar. For the dollar to lose its status, it may need a thousand more such cuts. A trend, however, is emerging.

http://blogs.reuters.com/columns/2011/09/06/nigeria-deals-the-dollar-another-blow/


More signs that all is not well with the USD, even nigeria, its most trusted business partner is getting jittery about its weak state. 
Could this be the reason for the sudden surge in terrorist attacks by boko haram? Saddam wanted to switch from trading in USD to the euro - look what happened to iraq after that, Gadaffi wanted to create a single african currency which he wanted europe to use to purchase his oil - look what has happened to libya - is nigeria about to toe the same line as these two major oil producers?

nigeria no get dat kind liver.

buzugee:

nigeria no get dat kind liver.

I agree - Yar Adua had more liver than GEJ. 

GEJ is a complete puppet who takes no decision on his own.

Plus he has little influence over the central bank.

This seems like a move by Sanusi but its not necessary for the benefit of Nigerians.

The move benefits the US.

All Nigeria is doing is shifting dollars to the chinese who can use that  money to further corner african resources.

African politicians prefer embezzling the dollar and not the Yuan.

The Yuan only has appeal in China - the dollars appeal is still worldwide despite its continuing devaluation.

If Sanusi were really acting in Nigerias interest he would have announced that he would invest half Nigeria's dollar holdings in Gold or possibly silver.

That would really piss the Yanks off.

Sun of god:

I agree - Yar Adua had more liver than GEJ. 

GEJ is a complete puppet who takes no decision on his own.

Plus he has little influence over the central bank.

This seems like a move by Sanusi but its not necessary for the benefit of Nigerians.

The move benefits the US.

All Nigeria is doing is shifting dollars to the chinese who can use that  money to further corner african resources.

African politicians prefer embezzling the dollar and not the Yuan.

The Yuan only has appeal in China - the dollars appeal is still worldwide despite its continuing devaluation.

If Sanusi were really acting in Nigerias interest he would have announced that he would invest half Nigeria's dollar holdings in Gold or possibly silver.

That would really piss the Yanks off.

this has to be the understatement of the century.  more like, that will INFURIATE the yanks to drop a few nukes and bombs in lagos and abuja and then declare jonathan as a war criminal and hunt him down like a dog and hand him over to the new rebel party headed by buhari to be hanged. thats more like it  we shall see how strong jonathans neck is. maybe it can withstand his body weight

Na wa.

Heard about this the other day.

The nigerian govt and questionable decisions sha.

Same thing happened when they rushed to congratulate the libyan rebels as if na only dem dey read news.

Sun of god how does the US benefit from nigeria converting 10% of its foreign reserves into yuan?

buzz and sun of god - i agree with you about america going beserk if nigeria converts half of its foreign reserves from USD to yuan -but i think that might be where nigeria is headed because the USD is depreciating steadily, other countries are also beginning to dump the dollar as well -do you guys think there might be a link between the boko haram bombings and nigeria's movement towards china?

here is an interesting analysis on nigeria's decision (from 3.00):


[flash=300,300]
https://www.youtube.com/watch?v=Xj6G90-_Ov0&feature=channel_video_title[/flash]

Nigeria dumps the USD and America goes berserk . . . . ROFLMAO!!

This na serious gutter fume inhaling some of you dey deal with there. . . . .

cap28:

Sun of god how does the US benefit from nigeria converting 10% of its foreign reserves into yuan?

buzz and sun of god - i agree with you about america going beserk if nigeria converts half of its foreign reserves from USD to yuan -but i think that might be where nigeria is headed because the USD is depreciating steadily, other countries are also beginning to dump the dollar as well -do you guys think there might be a link between the boko haram bombings and nigeria's movement towards china?

here is an interesting analysis on nigeria's decision (from 3.00):


[flash=300,300]
https://www.youtube.com/watch?v=Xj6G90-_Ov0&feature=channel_video_title[/flash]

Interesting take on things.

But I'm not sure how genuine Sanusi is and I question his true motives along with who he actually works for.

Selling oil to the Chinese in Yuan would be a bold move. But then its a question of what the Chinese do with the Yuan.

If they decide to also devalue their currency in order to boost exports then Nigeria losses out. If the currency continues to strengthen then its all good.

The currencies wars going on are like a game of chess. Any leader that 'check mates' the yanks is likely to meet their demise. Gaddafi and Saddam are classic examples.

Sanusi talks a good talk - but he did make a comment about how certain things have to be run by the ministry of finance and that's likely to be a sticking point.

Okonjo-iweala who heads up the ministry of finance is no doubt a 'world bank' stooge. And so I watch with interest.

I still reckon its better Nigeria reduces their holding in dollars and maybe spreads it out amongst several currencies including the Euro, Pound, Swiss Franc, and also use a portion of the money to invest in commodities such as precious metals.

Why yuan rather than euro?

ekt_bear:

Why yuan rather than euro?

Because the Euro zone is also in deep financial crises, !

Is the euro as a currency perceived as weaker than the yuan?

It is still essentially backed by Germany, is it not?

I dunno, I'm no finance/economics expert, but I'd have gone euro

9ijaMan:

Because the Euro zone is also in deep financial crises, !

I wouldn't have even answered such a st.upid question.

The guys ignorance is legendary.

He must be the only person in the world that doesn't know whats going on in the euro zone,

A complete 'mumu'.

^-- Hehe. My previous beatings of you still cause pain, eh?

Hehehe

I'm not very comfortable with China replacing the u.s. I think its a case of the devil you know in the US is better than the demon you don't know in China. But i must admit one need to be cautious of holding on to a falling currency. Someone suggested diversifying the reserve into precious metals. It doesn't sound like a bad idea to me. But then I'm not an economist. May be the NAIRA will be the world's currency heheheehe

Now this move benefits the Yanks?? ROFLMAO!!

gists:

I'm not very comfortable with China replacing the u.s. I think its a case of the devil you know in the US is better than the demon you don't know in China. But i must admit one need to be cautious of holding on to a falling currency. Someone suggested diversifying the reserve into precious metals. It doesn't sound like a bad idea to me. But then I'm not an economist. May be the NAIRA will be the world's currency heheheehe

Go easy on the optimism. You are right about China though. They are a bit of an unknown quantity. I dread the day they take over from the US.

Even if we don't dump the dollars now, we will be at a worse situation.
As it is now, China has the largest amount of foreign reserve in dollars. They know, in their heart of heart, that they are never going to get true value for the money. They are therefore trying to buy resources from Africa. In a way, they are transferring their risks to African countries who will be stuck with the soon-to-be depreciated dollars. Their method is most reasonable.
The case of Nigeria is not clear. Is Nigeria buying Chinese currency with dollars? I do not clearly understand how in God's world they are transferring dollars to Chinese currency.  The Chinese are not dumb in my opinion. We still sell oil and earn the soon-to-be-made valueless dollars. Why cant we improve our GDP by diversifying and also selling in Naira (backed with gold of course)?

It tell you nigeria economy is in the hand of the wrong people. If China has 1.5 trillion dollar of its reserve in the USA. that should tell you. You should have yours in USA dollar. china currency is not stable. what it means. is that that 10% of nigeria reserve, if it was 3 billion dollar. will become 1 billion dollar in 3 to 4 month. Nigeria may loss $2 billion

America is been smart. You see the cry of credit rate and all that is to make the USA dollar fall against other currency. that makes production increase, since the international market will be able to afford america product the more with a weaker dollar. a strong dollar means the world will buy more of china product and not america product. a weaker dollar means the world will buy more america product . and the more the world buy more america product. the more job in america.

that's a bold move from Nigeria,

i'm no financial expert but i think we should convert part of the reserves we might need to make use of to gold, which is for now on the high, and leave the rest in USD

careytommy:

i'm no financial expert but i think we should convert part of the reserves we might need to make use of to gold, which is for now on the high, and leave the rest in USD

Yeah, but the problem is that they will come after you. That is exactly what got Ghaddafi in trouble.

musiwa.,.:

America is been smart. You see the cry of credit rate and all that is to make the USA dollar fall against other currency. that makes production increase, since the international market will be able to afford america product the more with a weaker dollar. a strong dollar means the world will buy more of china product and not america product. a weaker dollar means the world will buy more america product . and the more the world buy more america product. the more job in america.

I wish I can agree with you but America has largely moved it's production to China. Almost everything coming from American companies are now manufactured for them in China. That means a weaker dollar will make Americans churn out more dollars to buy almost everything, especially those produced in China.

musiwa.,.:

It tell you nigeria economy is in the hand of the wrong people. If China has 1.5 trillion dollar of its reserve in the USA. that should tell you. You should have yours in USA dollar. china currency is not stable. what it means. is that that 10% of nigeria reserve, if it was 3 billion dollar. will become 1 billion dollar in 3 to 4 month. Nigeria may loss $2 billion

Agreed, but most of that 1.5 trillion dollars China has are not really in cash but in form of bonds backed by real assets. So the dollar might crash but the assets wont. But still, I am an engineer not an economist.

^^^^

AM IMPRESSED

https://www.youtube.com/watch?v=zMXJsZHla6Q

Why The World Is Dumping The American Dollar

Mba nu. . . MAKE DEM KEEP AM UNDER DEM BEDS.

Isn't MY God a marvelous GOD?

About time

12years after