Second-biggest Africa economy to convert up to 10% of holdings

BEIJING - Nigeria will turn 5 to 10 percent of the its foreign exchange reserves into yuan assets to diversify the reserve basket and further strengthen strategic cooperation with China, its central bank governor said on Sept 6.

Standard & Poor's downgrade of the US credit rating in August and European financial turmoil have made it necessary to quickly begin moving some of the reserve away from these currencies and looking to the long term, said Lamido Sanusi, governor of the Nigerian central bank, in Beijing at a news briefing.

Sanusi, whose father was Nigeria's first ambassador to China, in 1972, said: "The yuan will inevitably become a global reserve currency. We are pleased to be the first African country to take the step." He added that China's status as the world's second-largest economy and its bright prospects to maintain rapid growth in the future point to a continuation of that trend.

"Renminbi are already being traded on the streets of Nigeria, so this shows the market is ahead of us and we are just catching up."

The desire for yuan holdings is currently increasing due to common consensus that it is likely to appreciate while the US and European economies sour, said Sanusi. "This is the best time to move to the yuan."

Africa's second-largest economy holds foreign exchange reserves fluctuating between $32 billion and $36 billion. Seventy-nine percent of those reserves are invested in dollars. The country also holds assets in euros, British pounds and Swiss francs as well as some gold reserves.

Nigeria may apply to China's central bank to purchase yuan-denominated bonds directly on the interbank market, or buy yuan assets in Hong Kong, said Sanusi.

In addition, Nigeria may allow China to settle its oil purchases from Nigeria in yuan, and it says closer currency cooperation with China could increase its exports, he added.

According to Nigeria's government statistics, China exported goods worth $7 billion to Nigeria in 2010 and Nigeria exported $1 billion to China.

Nigeria is planning to sign a swap arrangement with the People's Bank of China for more yuan and has already discussed procedures with the central bank. The precise amount has not yet been decided.

China has been calling for less dependence on the US dollar in international trade and investment since the global financial crisis and has recently accelerated its steps to globally promote the yuan.

Last week, Ma Delun, vice-governor of the central bank, urged Eurasian countries to work with China to promote the use of national currencies including the yuan and so reduce reliance on the major world currencies and currency risks.

The world's second-largest economy holds a foreign exchange reserve of more than $3.2 trillion, two-thirds of it in dollars.

In August, it announced it will expand cross-border trade settlements in yuan from 20 provinces to the whole country, and it promised a 20-billion-yuan ($3.13 billion) QFII (qualified foreign investment institute) quota for Hong Kong companies to invest in Chinese mainland securities.

China also plans to allow foreign investors to make direct investments with yuan legally obtained overseas, and it is currently soliciting public feedback on the new rules.

In 2011, China signed currency swap agreements worth 700 million yuan with Uzbekistan and for 5 billion yuan with Mongolia, plus 7 billion yuan with Kazakhstan for wider usage of the yuan.

Bold Javkhlan, first deputy governor of the Bank of Mongolia, said on Sept 1 that the country is also considering including the yuan in its national reserves, but said it still has a long way to go to become a major global currency and the dollar's dominant position will not be shaken in the coming years.