Nigeria may reduce the portion of its foreign reserves kept in euros to minimize risk amid the European debt crisis, the central bank said.
“The euro component at 7.8 percent needs to be monitored closely and if necessary further reduced to minimize the currency and exchange rate risks associated with euro holdings occasioned by the euro-zone debt crisis,” the Abuja-based Central Bank of Nigeria said in a report published today on its website.
The bank held $2.5 billion worth of euros as of the end of 2011 out of its total reserves of $32.6 billion, with the U.S. dollar accounting for 82 percent, it said. Nigeria started adding the Chinese yuan in the fourth quarter, which reached $101 million equivalent by the end of the period, according to the report.
The euro has come under pressure as the prospect of Greece leaving the 17-nation euro region increased after parties opposed to the terms of the country’s second bailout by the European Union and the International Monetary Fund won most of the votes in May 6 elections. A fresh round of voting will be held June 17 after politicians failed to form a government.
The euro touched its lowest level since July 2010 against the dollar amid concern Spain’s regional governments may lose access to capital markets. The shared currency fell 0.1 percent to $1.2525 at 11:33 a.m. New York time after touching $1.2496, the least since July 6, 2010. It was little changed at 99.73 yen. The yen traded at 79.64 per dollar.
The foreign currency reserves of Nigeria, Africa’s top oil producer, rose 14 percent this year to $37.5 billion as of May 23, according to the bank’s data.
Central bank Governor Lamido Sanusi said in September the bank aims to hold as much as 10 percent of the country’s reserves in the Chinese currency and plans a swap arrangement with China for supplies of the yuan. The Asian nation’s decision to allow its companies to make outgoing investments in the yuan will also become a source of supply of the currency, he said.
Diversifying holdings into the yuan will improve liquidity and allow the bank to provide the currency to companies that import goods from China, Sanusi said in March. Nigeria will also use the currency as a “hedge” against currency risk when it borrows from China, he said.
Nigeria, Africa’s most populous nation with more than 160 million people, depends on oil exports for 80 percent of government revenue and more than 90 percent of foreign-exchange income. The country’s reserves are also held in British pounds, Swiss francs and Japanese yen.
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