The Central Bank of Nigeria is planning to shift attention from the dollar to the yuan for reserves as the Chinese currency plays a greater role in global trade, Deputy Governor, CBN, Mr. Kingsley Moghalu, has said, according to a Bloomberg report on Tuesday.
The bank will increase the yuan’s share of reserves to as much as seven per cent from two per cent, Moghalu said in an interview in London, without specifying a timeframe for the change.
Nigeria currently holds about 85 per cent of its reserves in dollars, he said.
“It was clear to us that the future of international economics and trade will shift in large part to business with and by China,” Moghalu said. “Ultimately, the renminbi is likely to become a global convertible currency.”
The central bank started to diversify its reserves into yuan in 2011 and is working with the People’s Bank of China to boost the holdings as soon as the relevant structures are in place, he said.
Nigeria’s naira weakened 0.3 per cent to N162.74 per dollar at 3:05pm on Tuesday in Lagos.
The Governor, CBN, Mr. Sanusi Lamido, had said the move to stock the reserves in other currencies other than the dollar was necessary in view of recent events in the global economy that have driven yields to historical low levels.
Sanusi had said, “A major concern among central banks in recent times is how to generate income from foreign exchange reserves without compromising the reserves management objectives of safety and liquidity.
“Liquidity and safety are far more important and they come before returns management.”
The central bank chief said since the financial crisis of 2008, reserves managers had come under increased pressure to find ways of enhancing income.
This development, he noted, had made the CBN to diversify its reserves portfolios by investing in the Chinese Renminbi.
Financial and economic analysts described the development as a good move, but said there was a need for the nation to still shore up its dwindling external reserves.
An analyst at EMK Investment, Mr. Oladuni Agbeleoba, said, “It is a good development for us to keep part of our reserves in yuan as China is now the second-largest economy in the world. However, one crucial point we must not miss is the need to shore up our reserves.”
The Monetary Policy Committee had last Tuesday risen from a two-day meeting and raised concerns over the dwindling external reserves and Excess Crude Account, adding that the development portended danger for the economy.
The MPC, which identified four key concerns for policy in the short to medium-term in the economy, listed them as depletion of fiscal buffers following the continued decline in oil revenue; rundown of reserves and depletion of excess crude oil savings; falling portfolio and Foreign Direct Investment inflows; and widening gap between the official and the Bureau de Change exchange rates; and creeping increase