"From PetroDollar to PetroYuan – The Coming Proxy Wars"
From Golem XIV:
Why would the central bank of Nigeria decide to sell dollars and buy Yuan?
At first glance it might not seem the most interesting or pressing
question for you to consider. But I think it is one of those little
loose threads that if pulled upon carefully begins to unravel the hints
and traces of a much larger story. But please be warned this is
speculative.
Two days ago the Nigerian Central Bank announced
it was going to increase the share of its foreign currency reserves
held in Yuan from 2% at present, to up to 7%. To do this it was going to
sell US Dollars. Now a 5% swing in anything financial is big. In our
debt drunk times it’s difficult somethimes to remember that 2.15 billion
dollars (which is what 5% comes to) is actually a great deal of money,
even if it is less than a drop in America’s multi trillion dollar debt
ocean. On the other hand even a 5% increase in Yuan would still leave
80% of Nigeria’s $43 billion worth of reserves in dollars.
BUT while it is small in raw financial terms I think it is significant in geopolitical terms.
Nigeria is Africa’s second largest oil and gas exporter. It holds as
many dollars as it does because oil is sold in dollars. Nigeria gets
paid in dollars which it then needs to recycle. This is the famous
petrodollar in action. It is also a major reason the dollar is still the
world’s major reserve currency and that in turn is why America can have
such a monumental pile of debt and still (for now) be the risk-off
haven that institutional investors run to when other currencies and
markets become too risky and unstable.
What interest me is that prior to this announcement from Nigeria’s
central bank, China has, for some years now, been working hard and
succesully to buy exploitation rights in Nigeria’s oil fields. In 2009 The Wall Street Journal reported,
Chinese companies have proposed investing $50 billion to
buy 6 billion barrels of oil reserves in Nigeria, the African nation’s
presidential adviser on energy said Tuesday.
A year later in 2010 the WSJ reported,
Nigeria and China have signed a tentative deal to build
three oil refineries in the West African state at a cost of $23 billion,
in a move to boost badly needed gasoline supply in Nigeria and to
position China for more access to the country’s coveted high-quality oil
reserves.
And just last year China extended a $1.1 billion loan in return for
a reported agreement that oil exports to China would increase from
around 20 000 barrels a day to 200 000 per day by 2015. This loan was on
top of a range of development agreements betwen the two countries for
various infrasctructure projects such a telecoms and railways.
Nigeria had, as of 2011, over 37 billion barrels of proven oil
reserves. China is now one of its major trading partners. China wants
Nigerian oil and my guess is that if it isn’t doing so already it is
going to trade it entirely in Yuan. Such a move would mean Nigeria would
need fewer dollars and more Yuan and the PetroYuan would begin to rise
at the expense of the Petrodollar.
For some years now China has been making the Yuan a settlement
currency. I have written about this a lot over the years. In 2012 I
wrote a piece called “A new reserve currency to challenge the dollar – What’s really going on in the Straits of Hormuz.” China
has created a series of bilateral settlement agreements with, among
others, the EU, South Korea, Iran, India and Russia. All of these
agreements by-pass the US dollar. If China now trades its oil in Yuan
where will that leave the dollar? Of course Saudi would never agree to
such a thing, would it?...MORE