Adoption of China’s currency gains popularity in southern Africa

The growing adoption of China’s currency by central banks was advocated at a forum on foreign reserve management in Southern Africa held in Harare, Zimbabwe, with the participation of 14 countries in the region, including Angola and Mozambique.

A spokeswoman for the Macroeconomic and Financial Management Institute of Eastern and Southern Africa (MEFMI) Gladys Siwela-Jadagu said that the Harare Forum took place at a time when central bank reserves in the region are “roughly” at minimum levels and that public debt denominated in foreign currencies continues to increase, as well as interest payments, as countries are using commercial loans to finance infrastructure construction.

Most of the reserves of the majority of countries in the region are invested in dollars, and their makeup has yet to accompany changes in the world economy, in particular, the rise of China and India, which have gained particular importance as African trading partners in recent years.

“Most countries in the Eastern/Southern region have loans or grants from China and it would make economic sense to pay them in yuan. This is why it is critical for policy-makers to strategise about the continent’s progress towards adopting the Chinese yuan, which has become what we can call a common currency in trade with Africa,” said Siwela-Jadagu cited by the Xinhua news agency.

“As China is the largest trading partner for more than 130 countries, the main challenge for African countries is how to benefit from the new pattern of international trade,” she said.

The forum was attended by representatives of central banks and governments in the region, as well as officials from the African Development Bank.

In March, Nigeria signed a US$2.4 billion currency exchange agreement with China in the wake of a similar move by another of the major African economies, South Africa, which in 2016 launched an initial exchange platform between the yuan and the rand, to facilitate exchanges between the two currencies.

Earlier, Ghana, Nigeria, Mauritius and Zimbabwe had accepted the yuan for payments and reserves, and the Nigerian central bank already has more than 10% of its foreign reserves in Chinese currency.

China and Angola signed an official agreement in August 2015 to allow for reciprocal use of the currencies of both countries, which was then interpreted by the Economist Intelligence Unit (EIU) as a result of the Angolan “hope” that greater use of the yuan will reduce the need for dollars, which are scarce in the country.

The Macau Special Administrative Region has been taking steps to play a role in the African roll-out of the yuan, with the support of the central government of China, to become a bank platform for clearing the currency between China and the Portuguese-speaking countries. (macauhub)