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Nigeria’s foreign reserves fall to $32.3bn

*Chinese Yaun ‘ll become reserve currency—Sanusi

Nigeria’s foreign exchange reserves fell to $32.3 billion by Sept. 2, the same level they were on June 24, and down from a six-month high in August. Nigeria’s foreign reserves peaked at $35.9 billion on Aug 8, its highest in six month, but fell to $32.92 billion at the close of last month.

Meanwhile, a day after Nigeria said it would diversify a 10th of its $32 billion foreign exchange reserves into the yuan, the Central Bank governor Mallam Lamido Sanusi said Beijing would allow the Nigerian Central Bank to use yuan to buy Chinese bonds, which are open to a small group of qualified foreign investors.

In a separate interview with Reuters Insider, Sanusi said euro holdings would be decreased to make way for yuan holdings. Welcoming the access that Nigeria gets to China’s tightly-controlled capital markets, Sanusi said Nigeria may allow Beijing to settle its Nigerian oil purchases in yuan.  He said the two countries may also set up a currency swap, but he did not say how big that may 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. Despite Sanusi’s ambitious plan, China’s lack of a deep and liquid yuan market could make other developing countries slow to follow in Nigeria’s footsteps, said Wei Yao, China economist with Societe Generale in Hong Kong.

“China is gradually opening up its capital markets and developing a deep financial market with better liquidity and more (investment) alternatives, so it’s going to take time,” she said.

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 U.S. 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.

“(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, U.S. credit markets actually strengthened as investors flocked to U.S. Treasuries as safe haven investments. A weaker dollar hurts China since it is heavily invested in the dollar too”.

China hopes to benefit from a weaker dollar by pushing for the yuan’s use in international trade and investment. To that end, Beijing has made it slightly easier in the past year for foreign investors to hold yuan.


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