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Frank Knopers

Frank Knopers

Frank Knopers has studied Business Administration at the University of Twente in Enschede and obtained a Master degree in Financial Management with his research on the…

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The Yuan Could Become Africa’s New Trade Currency

China Yuan

Central bankers from various African countries are considering using the Chinese yuan as trade currency for the region, according to Chinese news agency Xinhua. Soon, representatives of central banks from fourteen different African countries will meet in the Zimbabwean capital Harare to further discuss these plans. Representatives of the African Development Bank will also attend this African summit meeting.

According to Gladys Siwela-Jadagu, spokeswoman for the Macroeconomic and Financial Management Institute of Eastern and Southern Africa (MEFMI), it is a logical step for many African countries to use the yuan as a currency for international transactions. She said the following about this in an interview with Reuters.

“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). This is the reason why it is critical for policy makers to strategize on progress that the continent has made to embrace the Chinese yuan which has become what may be termed ‘common currency’ in trade with Africa.

With China as the largest trading partner of over 130 countries, the main challenge for African countries is how to benefit from the new pattern of international commerce.”

Chinese yuan as trade currency for Africa

The MEFMI is a regional institute with fourteen countries affiliated to it, namely Angola, Botswana, Burundi, Kenya, Lesotho, Malawi, Mozambique, Namibia, Rwanda, Swaziland, Tanzania, Uganda, Zambia and Zimbabwe. These countries are doing more and more business with China, for example by exporting raw materials in exchange for Chinese involvement in improving infrastructure. Related: What Really Drives Gold Prices?

Currently, these countries have predominantly U.S. dollars in their reserves, but due to the increasing trade with China and the loans in yuan for infrastructure investments, it is no longer obvious for countries in the region to hold mainly dollars in their reserves. In fact, according to MEFMI’s spokesperson, there is a limited chance that Western countries will increase investments in Africa over the next few years.

China is promoting the use of yuan in international trade, but so far only with limited results. The dollar is still the dominant world trade currency, but due to changes in global trade and investment flows the yuan is expected to gain importance over the next few decades.

By Frank Knopers via Geotrendlines.com

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