Opinion
Africa stands to benefit from China’s push for the yuan as global reserve currency
Currently, traders dealing with the Chinese market incur additional costs when converting say from the Kenyan shilling to the yuan. Traders are forced to convert to the dollar first, then to the Chinese currency, resulting in loss of actual value and commissions.
Foreign Reserves
Already, several countries on the continent are including the yuan in their reserves. The Bank of Ghana is using the reminbi as part of its settlement and reserve currencies. Ghana, Mauritius, Nigeria, South Africa, Zambia and Zimbabwe have already joined a growing list of countries in Africa and the world using the yuan.
China is Zimbabwe’s third largest trading partner after South Africa and the European Union. Last year, the trading volumes between the two countries amounted to more than US$1.4 billion.
In Nigeria, only 75 percent of foreign currency reserves are held in dollars, with the yuan forming 10 percent of the currency reserves.
In March, Nigerian Central Bank Governor Godwin Emefiele said that they were planning to shift more of the county’s foreign reserves from dollars into yuan as the reminbi gains traction in trade with Nigeria. Currently, the country holds more than US$4.7 billion of its foreign reserves in Chinese yuan.
Nigeria’s bilateral trade with China rose to US$23.5 billion last year.
However, analysts warn that further internationalization of the Chinese currency in Africa may also have negative impacts on economies, especially because of limited exchange rate flexibility and access to capital markets.
Gerishon Kinori, a Treasury dealer at Bank of Africa, warns that the dollar has long been the common reserve currency for trading in the world of international finance and African central banks will need to strike a balance when using the yuan.
The original version of this article was first published in the Africa Review
