Business / Markets

Chinese yuan penetrates African markets

(Un.org) Updated: 2014-10-14 15:47

Mauritius is one of the countries where a growing demand for the Chinese currency has been reported. And while the Bank of Zambia has not yet included the RMB in its reserves, it has pledged to increase its use for trade settlements with China. During his visit to China in August last year, Kenyan President Uhuru Kenyatta promised to host an RMB clearing house.

As Sino-Africa ties continue to outperform, a number of African central banks are applying to the Chinese Central Bank for currency swap, which is the exchange of a loan in one currency for another and the placing of a share of their reserves in the RMB. China has remained Africa's largest trade partner since 2009. Total trade between China and Africa reached $210.2 billion in 2013, up 5.9 % from the previous year, according to the data from the China Chamber of International Commerce.

Mr. Mugano said the global economic crisis motivated China's move to internationalise the RMB. Since then, Beijing has encouraged the use of its currency in international trade, swap arrangements between central banks, bank deposits and bond trades.

"Beijing signed several bilateral currency swap agreements, expanded settlements of cross-border trade transactions in RMB and allowed new forms of RMB operations in the Hong Kong offshore market," he said.

Mr. Mugano noted that the main obstacles to the further internationalisation of the Chinese currency included the lack of exchange rate flexibility and limited access to capital markets. This, he said, would constrain the RMB as a widely used vehicle currency like the US dollar, which plays a unique role in the world of international finance – as the world's reserve currency, which is used to settle most international transactions.

"Most global central banks hold their reserves in US dollars. In addition, many smaller countries choose either to peg their currency's value to that of the dollar or forgo having their own currency, choosing to use the dollar instead as is the case in Zimbabwe. This contributes to the dollar's status as the world's most important currency," said Mr. Mugano.

According to Swift RMB Tracker, the RMB is already being transferred over Swift by more than 1,000 banks in 85 countries. Swift, or Society for Worldwide Interbank Financial Telecommunication, is a global transfer system used by companies for financial transactions. Recent data by Swift shows that the growth in the use of the RMB in traditional trade finance has propelled the RMB to the second most used currency in the market.

China's rapidly increasing trade with Africa provides fertile ground and demand for cross-border RMB settlements. While its use is still limited, the currency is gradually penetrating the African market.

Chinese yuan penetrates African markets

Chinese yuan penetrates African markets

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