Opinion
Africa stands to benefit from China’s push for the yuan as global reserve currency
By Allan Olingo
China’s push for the International Monetary Fund (IMF) to endorse its currency, the yuan (or the reminbi -RMB), as a global reserve currency to reflect the country’s growing share in world trade, could help shield Africa from inordinate exposure to the U.S. dollar.
Africa’s trade with China is expected to reach US$385 billion by the end of 2015, creating more demand for cross-border yuan settlements, which are now expensive because the transactions have to be first settled in the U.S. dollar, the leading reserve currency.
Yi Gang, Vice-Governor of the People’s Bank of China, was quoted by the Wall Street Journal as saying that the inclusion of the yuan in the Special Drawing Rights (SDRs) would aid China’s attempts to diminish the dollar’s dominance in global trade and finance and also provide a better trading alternative.
The SDRs are an international reserve asset, created by the IMF in 1969 to supplement its member countries’ official reserves. The value of the SDRs is based on a basket of four key international currencies, and the (SDRs) can be exchanged for freely usable currencies.
“We hope the IMF can fully take into account the progress of reminbi internationalization, to include reminbi into the basket underlining the SDRs in the foreseeable, near future,” said Yi.
The IMF is expected later this year to conduct its next twice-a-decade review of the basket of currencies its members can count toward their official reserves.
Currently, the IMF recognizes the Japanese yen, the U.S. dollar, the sterling pound and the euro as official international foreign exchange reserve assets.
In the meantime, China is hoping to navigate the limited acceptance of the yuan by setting up official clearing windows for yuan transactions in its key markets, such as the one signed with the South African Reserve Bank on Tuesday last week.
