Nigeria, West Africa’s largest economy, is selling U.S. dollars for Chinese yuan.
Nigerian Central Bank Gov. Lamido Sanusi said in Beijing on Sept. 6 that Africa’s top oil exporter will convert as much as 10 percent of its $33 billion in foreign reserves from U.S. dollars into Chinese yuan. Central banks use foreign reserves to manage their own currency’s value.
In Nigeria’s case, that 10 percent ($3.3 billion) it may convert to yuan isn’t an enormous sum — not, at least, for the oil-rich exporter. What is enormous, economists say, is what the bank’s decision says: The yuan, pegged to the dollar until not long ago and managed more recently to keep Chinese exports cheap — is turning into a global reserve currency. Africa — particularly West Africa — may be China’s earliest, easiest zone of success.
The rise of China’s yuan as a global currency — trusted by central banks, accepted by finance ministries, routinely used to purchase raw goods — is “inevitable,” Sanusi said, putting his mouth where his money is.
Coming from Africa’s most dollar-denominated economy — dominated by Western oil companies — his vote of confidence is “a significant win” for the yuan, says Razia Kahn, economist at Standard Chartered Bank, a multinational bank based in London.
“I don’t think the symbolism should be lost on anyone,” she says. “The fact that you have a major African oil producer saying, ‘We’re going to diversify our reserves’ has a significance that can’t be ignored. It’s a goodwill gesture in the hope that it will lead to more Chinese investment in Nigeria.”
The bank, Sanusi adds, is likely to orchestrate a currency swap with China, which would allow the Asian power to conduct more of its Nigeria dealings in its own currency, the yuan (also called the renminbi).
“That opens up a whole new dimension,” Khan says.
Since the end of World War II, most international commodities have been priced and sold in U.S. dollars, an advantage to American buyers and the principal reason why dollar-conversions account for 85 percent of foreign-exchange transactions around the world.
Gingerly, the world’s most populous country is attempting to push its currency as a rival for commodity purchases. It will find no greater success than in Africa, a continent flush with minerals, where China enjoys close ties, say Standard Bank researchers Simon Freemantle and Jeremy Stevens.
“We, rather conservatively, anticipate that around 40 percent of [Chinese]-African trade would be settled in renminbi by 2015,” Freemantle wrote in an email. That 40 percent would represent $100 billion worth of trade, more than China’s entire trade with Africa last year.
If successful in Nigeria, China is likely to turn to other financial centers on the continent: South Africa, then Ghana, Angola, and Kenya.
But, in a sense, Khan says, China has already displaced the dollar in Africa’s more blighted corners: Guinea, Democratic Republic of Congo and Sudan. In each, China is constructing mammoth infrastructure projects — roads, railways, ports, stadiums — in return for commodities like cobalt and bauxite.
“At the end of the day,” Khan says, “isn’t all that infrastructure just a proxy for China’s currency?”
Drew Hinshaw is a correspondent for the Christian Science Monitor.