Opinion
Africa stands to benefit from China’s push for the yuan as global reserve currency
Infrastructure Projects
Kenya is also pursuing a similar arrangement with Beijing, given the way Chinese contractors have come to dominate big ticket projects like the standard gauge railway.
Robert Mudida, an economist and lecturer at Strathmore Business School in Nairobi, said the inclusion of the yuan in the global reserve currency list would be a big boost for Africa, which is currently executing multi-billion dollar infrastructure projects.
“Africa is increasingly doing business with China and having its currency as a designated reserve will boost this trade. African economies will be the biggest winners, as this will reduce trading costs and currency conversion losses,” Mudida said.
China has become a major destination for a range of African exports as well as an increasingly significant source of a wide range of manufactured goods imported by many African countries. Currently, African economies trading with China settle in dollars when trading between their own African currencies and the yuan, an extra step that increases the trading costs.
George Bodo, head of financial desk at Ecobank Capital, said it would take a mindset shift for people to use yuan-denominated invoices.
“The key factor is that if you look at Kenya’s foreign currency market, most of the goods exported are priced in dollars with the destination market being Europe. Having some of these reserves in yuan will not boost Kenya’s basket,” he explained.
“Having the yuan will only be important when we have trade deals with China, but the advantage will be minimal. Most of the time, the conversion will have to be done in dollars, as it is the reference point.”
“The biggest advantage in this move for African economies is that many more countries will use the reminbi to avoid foreign-exchange losses when trading with China,” added Bodo.
