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"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. "
"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. "
by InformedTrades via InformedTrades
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