Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Could Nigeria Become Africa’s Offshore China RMB Hub?

Currencies / China Currency Yuan Oct 14, 2016 - 04:58 PM GMT

By: Dan_Steinbock

Currencies On October 1, the Chinese renminbi officially joins becomes the fifth international reserve currency. Over time, Nigeria stands to benefit from RMB’s rising international role.

On October 1, 2016, the Chinese renminbi (RMB) will officially join the International Monetary Fund’s (IMF) international reserve assets; that is, the SDR (Special Drawing Rights) basket. From the perspective of the IMF, this is recognition of China’s success in opening up its markets.


The future of the Chinese RMB is far from irrelevant to Nigeria. Last spring, after a successful visit in Beijing, President Buhari said that Nigeria had received a $6 billion Chinese loan to fund infrastructure projects.

In the short-term, Nigerian authorities hope to rely on China’s support to finance the 2016 deficit. But should they have even longer-term strategic RMB objectives?

Three waves of capital inflows

After October 1, RMB asset are likely to benefit from three consequent waves of capital inflows. The first wave involved the very inclusion of the RMB among the IMF international reserve assets. That caused a re-weighting of the SDR basket, which is currently valued at $285 billion.

Today, the SDR assets remain dominated by the weights of the US dollar (41.7%), the euro (30.9%) and Chinese renminbi (10.9%), followed by the UK pound (8.1%) and Japanese yen (9 percent). The weight of the RMB translates to about $31billion into the RMB assets starting in October, probably gradually over half a decade.

As long as China’s economic growth prevails, even as it decelerates, and financial reforms continue, the RMB inclusion is likely to prompt another wave of capital inflows by central banks, reserve managers and sovereign wealth funds. Today, the allocated part of the global foreign exchange reserves – the Currency Composition of Official Foreign Exchange Reserves, or COFER – amounts to $7.2 trillion. The US dollar still accounts for nearly two-thirds of the total, against a fifth by the euro, while the pound and the yen are less than 5% each.

Now, assuming that China’s current share of global reserves is about 1 percent, the IMF’s decision could cause a significant capital inflow (5%) – about the weight of the yen or pound – into the RMB assets, which would translate to some $360 billion by 2020. If, on the other hand, the RMB’s COFER share would reflect its SDR weight, the inflow of capital could more than double to over $780 billion.

A third capital inflow is likely to ensue as private institutional and individual investors follow in the footprints of the IMF and public investors. If these allocations rise to just 1 percent, they could unleash about $200 billion into the RMB assets by 2020. But again, if these allocations would reflect the renminbi’s SDR weight, capital inflows could double, triple or increase by a magnitude.

Shifts among offshore RMB leaders

Nothing reflects the behind-the-façade positioning for the renminbi as the dramatic expansion of offshore RMB clearing hubs – that is, international financial hubs that can build liquidity and promote the use of the Chinese currency outside of China.

Today, there are more than 20 offshore RMB clearing hubs appointed by the People’s Bank of China (PBOC). These hubs are typically characterized by strong trading and investment ties with China. They are also strategically located in the key world regions covering all time zones.

In the early days of the RMB internationalization, Hong Kong had a near-monopoly of all renminbi payments internationally. For all practical purposes, this dominant position endured as long as the mainland was mainly a destination of foreign capital.

Today, as Chinese multinational companies and investors are internationalizing rapidly and Chinese capital is moving across the borders, Hong Kong’s role as the leading RMB offshore center remains dominant in absolute terms but is declining in relative terms. It still has more than two thirds of offshore RMB traffic (70%).

Until recently, Singapore was the strong second RMB offshore center in the world, but not anymore. After a year of London’s purposeful efforts to have a much closer relationship with China, the UK (6.5%) has replaced Singapore (4.5%) as the second largest RMB offshore center worldwide.

While Singapore fell third among the RMB offshore centers, the tiny city-state remains a key hub, thanks to its location as a geographic hub for foreign multinationals and their treasury centers, as well as regional commodity trade.

Thriving early RMB offshore hubs

Until recently, the US had no role among the RMB offshore centers but unofficially that is changing as well. Today, the US (3.1%) ranks fourth after Singapore, barely ahead Taiwan (2.5%) and South Korea (2.1%).

Nevertheless, like London’s City, Wall Street is likely to embrace the RMB over time. As London understood quite well a year ago, early entrants in the offshore RMB business stand to benefit from the Chinese currency’s internationalization.

During President Buhari’s visit to China, the RMB accounted for 7 percent of Nigeria’s $27 billion foreign exchange reserves, as opposed to the mighty US dollar (77%). However, the Buhari-Xi agreement on the flow of the RMB in Nigerian banks hoped to make the Chinese currency a part of Nigeria’s foreign exchange reserves, thus supporting China’s goal of RMB internationalization.

As long as it can deter separatist inclinations, Nigeria will continue to overtake South Africa’s role as the largest potential BRIC economy in the continent. Nevertheless, there are no Sub-Saharan offshore RMB centers, at least as of yet.

The question is, could and should Nigeria seek to become the first one?

Dr. Dan Steinbock is an internationally recognised expert of the nascent multipolar world. He is the CEO of Difference Group and has served as Research Director at the India, China and America Institute (USA) and visiting fellow at the Shanghai Institutes for International Studies (China) and the EU Centre (Singapore). For more, see www.differencegroup.net   

© 2016 Copyright Dan Steinbock - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in