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Home Africa

African states consider endorsing yuan as reserve currency

Emmanuel Chilamphuma by Emmanuel Chilamphuma
August 15, 2018
in Africa, Currency, Economy, Finance, Mozambique, Natural Resources, South Africa, Zimbabwe
Reading Time: 2 mins read
1
Why Is China Investing Billions Across Africa?
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Undoubtedly, China’s rise in the global economy has sent shockwaves to the greater economies. As the trade partnership between China and Africa continues to grow, it has left a mark on the continent through its funding of infrastructure projects.

Beyond that, most products found in shops are likely to have been imported from China. Furthermore, African states are turning away from conventional financial institutions to seek help from the East Asia state.

As China’s influence spreads across Africa, leaders within the continent have debated replacing US Dollar with Yuan as reserve currency. According to VOA,

“Adopting the yuan, also known as the renminbi, or RMB, would make it easier for African countries to pay back loans to China.”

In May 2018, central bankers from 14 African nations met in Harare, Zimbabwe to discuss the possibility of switching to yuan. Among the delegation was Gladys Siwela-Jadagu, the spokesperson for the Macroeconomic and Financial Management Institute of Eastern and Southern Africa(MEFMI). She said,

“As at the end of 2017, official reserves for most countries in the MEFMI region stood barely at or below the traditional three months of import cover benchmark. Foreign currency denominated public debt continues to increase as well as interest payments, as most countries move to more commercial sources of borrowing to meet their increasing appetite for infrastructure projects”

“Most countries in the MEFMI region have loans or grants from China and it would only make economic sense to repay in renminbi (Chinese yuan)”

Kenya and Lesotho explicitly supported the yuan, and cash strapped Zimbabwe is likely to back this move, following its decision to approve yuan as legal currency in late 2015.

China’s loans to African states have increased a great deal in recent years, switching to yuan might prove favourable to service debt much quicker and increase economic activities.

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Emmanuel Chilamphuma

Emmanuel Chilamphuma

Emmanuel was born in Zimbabwe to a Malawian family and grew up in London. He holds an International Economic Law degree from the University of London and has been focused in African markets since the beginning of his career. He was previously an Analyst for a UK based family office with assets in Southern Africa. Where he focused on market entry assessments and operational risk.

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Comments 1

  1. Avatar saitoti says:
    3 years ago

    we must say whether we like or not that we as Africans have become addicts to easy Chinese money. We over look the consequences at or peril. we will or already have sold our independence. we are over drinking. someone please slap us because the hangover is coming.

    I am crying wolf!!!!

    Reply

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