The Governor of the Central Bank of Nigeria (CBN), Mallam Sanusi Lamido Sanusi, Monday justified the central bank’s decision to diversify the country’s reserve base from the United States dollar by investing in China’s Renminbi, saying the move had paid-off two years after.
He said Renminbi, also known as Yuan had since been appreciating in value.
Speaking at the opening of a regional course tagged: “Optimising Reserves and Forex Management for Income Generation,” organised by the West African Institute for Financial and Economic Management (WAIFEM), Sanusi noted many countries were beginning to diversify their reserve currencies in other emerging economies that were showing promises.
Sanusi said: “The issue about risk is changing because of the dynamics of the global economy and you know pretty well that currently there are issues around the strength of the currencies all over the globe and the debate is ongoing on whether or not, the dollar would continue to be the de-facto reserve currency.”
Continuing, he said: “That’s why so many countries are changing the basket of currencies where they keep the reserves so that they can mix their risks-and then, they are beginning to diversify.”
Represented by CBN Deputy Governor, Operations, Mr. Tunde Lemo, Sanusi also said the time was not ripe for investment of the nation’s reserves in African economies because their “currencies are not internationally convertible,” adding that “it may take time before we begin to see other African countries investing in other African currencies.”
He added: “It would take time but at least economies like China, South Korea, Canada and Australia may begin to see upsurge in investment because of the trajectory of their currencies.”
Sanusi also argued the country’s reserves remained strong and had not been declining in recent times.
He said: “Our reserves level is about $46 billion and that is still very strong; approximately 11 months of imports. The fundamentals of the Nigerian economy are very strong. Occasionally, there may be a bit of increase or decrease – it’s been hovering $45 billion and $47 billion – and that is very strong. In Africa it is the second highest only after Algeria and that’s really very remarkable.”
The Director General of WAIFEM, Prof. Akpan Ekpo, said the country’s currency could only be secured through the exportation of non-oil products.
He explained: “The only way you can shore up your currency is to produce for exports even if not the finished product but something in the value chain. If you keep exporting commodities like crude oil to earn foreign exchange, that will not shore up your currency.”
Meanwhile, the naira pared last week’s losses against the United States dollar at the interbank segment of the foreign exchange market as a result of the intervention by the CBN.
Data obtained from the Financial Market Dealers Association (FMDA) showed the nation’s currency appreciated by N1.47 to close at N162.60 to a dollar yesterday, compared with the N164.07 to a dollar it stood at the interbank market last Friday.
THISDAY learnt the central bank sold dollars directly to banks yesterday to improve the liquidity position of the market.
Also, at the regulated Wholesale Dutch Auction (WDAS) yesterday, the central bank sold the entire $300 million it offered to dealers. But the naira maintained its value of N155.76 to a dollar at the WDAS.
Responding to enquiries by THISDAY, London-based Economist at the First City Monument Bank Group (FCMB), Mr. Alan Cameron, said the recent depreciation suffered by the naira was due to foreign portfolio outflows as a result of developments in the global financial market.
Cameron explained: “In our view, the recent depreciation of the naira – which does not appear to originate from a shortage of United States dollars at WDAS, is being driven by foreign portfolio outflows. These outflows are the result of global market developments, concerns over US Fed ‘tapering’ in particular.
“Although the CBN has not intervened as actively as it once did to protect the value of the naira in the interbank market, our view is that the major outflows have already occurred. All else equal, we therefore expect the naira to recover back to around N160/$1 over the coming weeks.”
Information from This Day was used in this report