Angola among the countries that can benefit most from the internationalisation of the renminbi

5 October 2016

The currency of China has been attracting African countries, especially after its inclusion among the benchmark currencies of the International Monetary Fund (IMF), with Angola considered one of the countries that will most benefit from its use.

Analyst Yi Ren Thng, of the Centre for Chinese Studies of South Africa’s Stellenbosch University, says that African businesses can take advantage of the increased use of the renminbi (RMB) in trade with Chinese counterparts, at a time when trade between China and Africa has reached US$180 billion.

Chinese exporters, he said quoting a 2013 study by the Hong Kong and Shanghai Banking Corporation (HSBC), can offer up to 5% discount if African buyers issue receipts in RMB, and that the use of the Chinese currency decreases foreign exchange risks related to the conversion of local currencies into RMB via the dollar.

Triangular transactions, said the analyst, have been “harmful” to countries like Angola, where oil exports are the foundation of the economy and that “constantly face shortages of dollar liquidity, given the outflow of dollars because of lower oil prices,” as is currently the case.

Exchanges directly in RMB “also reduce currency hedging costs in the case of futures contracts, where an agreement between a Chinese company and an African company on products at a predetermined price at a specific future time do not incur extra costs of having to anticipate USD/RMB fluctuations,”he says.

In South Africa, the largest economy in Africa, the use of RMB increased by 65% ​​between 2014 and 2015, benefiting from the opening by the Bank of China in Johannesburg in July 2015, the first RMB clearing platform on the continent.

At a conference in Lisbon in September, Anselmo Teng, chairman of the Monetary Authority of Macau, who stressed that the MSAR plans to establish a RMB clearing platform between China and Portugal, “which may support the internationalisation procedures” of the Chinese currency and “provide facilities to clear economic and trade transactions in RMB between China and Portuguese-speaking countries.”

Potential development in the cross-border use of RMB between China and Portuguese-speaking countries is very broad, given the current level of trade of more than US$98 billion in 2015, said Teng.

It is hoped that the inclusion of the renminbi in the Special Drawing Rights (SDR) basket of the IMF, which happened on 30 September at a ceremony with the presence of the Director General of the Fund, Christine Lagarde, will lead to an increase in forms of financial cooperation between China and Africa.

Siddharth Tiwari, director of the Department of Strategy, IMF Policy and Monitoring, said the inclusion of the RMB, alongside the euro, dollar and yen, reflects the “growing role of China in global trade, a substantial increase in the use and marketing of the RMB,” while reflecting China’s reforms in monetary systems, foreign exchange and finance.

“We hope that the inclusion of the RMB in the SDR basket will further support the ever increasing use and marketing of RMB internationally,” Tiwari said.

Several African countries have included the RMB in their foreign currency reserves, while showing interest in the issue of bonds denominated in China’s currency, sold on Asian markets, with lower issue costs than sovereign eurobonds, which in Angola’s case have coupons of close to two digits.

The use of bonds in RMB may facilitate settlement of Chinese loans to countries like Angola, but also help finance the development of infrastructure. (macauhub)