In an article recently published on the website of the Council on Foreign Relations, the financial consultant and specialist in sub-Saharan Africa John Casey argues that “dominance of the dollar is no longer certain” in the region and that this year will “establish the renminbi’s role in Africa.”
Despite the current volatility, the timing is “auspicious for the Chinese currency to challenge the dollar hegemony” in Africa where the oil-producing countries are fighting against the “decimation” of foreign reserves in dollars, linked to the drop in oil prices, said Casey.
As noted in the case of Angola and Mozambique, which have unsuccessfully tried to halt the sharp depreciation of their currencies, lower foreign reserves decrease the performance capacity of central banks to support the exchange rate of their currencies and hamper the repatriation of profits by foreign companies.
Another reason Casey gives to back up his claim about the Chinese currency is the creation of the Asian Infrastructure Development Bank and the New Development Bank (formerly the BRICS Bank), rival institutions based on U.S. dollars (the IMF and the World Bank), which “conceivably may soon be based on the renminbi.”
As well as this, the consultant said, China’s relations with African countries are more diverse and “mutually beneficial” than those of U.S. institutions. In August 2015 China and Angola signed an official agreement allowing reciprocity in the use of the currencies of both countries, which was interpreted by the Economist Intelligence Unit (EIU) as a result of Angola’s “hope” that greater use of the renminbi will decrease the need for dollars.
According to Portuguese bank BPI, this agreement makes it possible to “make up for the lack of dollars,” needed to pay for imports, but the effect in currency terms will likely be none. Yao Jian, sub-director of the Central Government Liaison Office in Macau, said last week that the Special Administrative Region would play a role in implementing the renminbi in Africa, with the support of the Chinese central government support for it to become a clearing house for China’s currency, between China and the Portuguese speaking countries.
Speaking at a seminar on the promotion of services in renminbi to the Portuguese speaking markets, Yao Jian said China wanted Macau to be not only a platform for economic and trade contacts with the Portuguese speaking world and a world centre for tourism but also a financial platform for the promotion of services in the Chinese currency.
At the seminar, the subdirector of the Bank of China (BOC), Wang Jun said that the BOC already had services in renminbi with 35 banks in six Portuguese speaking countries representing 7.6 billion renminbi in 2015, or 15 percent more than in 2014.
Source: Macau Daily Times