The Central Bank of Nigeria is converting more of the nation’s foreign reserves from the dollar into the Chinese renminbi or yuan.

The Financial Times reported that in August, the central banks of Nigeria and Tanzania joined their counterparts from other continents in adding more renminbi to their reserves.

The CBN had said in a statement in March that it had converted $500m of the country’s external reserves into the yuan in the last six months.

The CBN Governor, Mr. Lamido Sanusi, had 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.

The internationalisation of the renminbi is reaching deep into Africa.

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 internationalisation 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.”

Source: Punch