Pretoria, China’s biggest trading partner in Africa, recently declared officially being a user of the Chinese currency. This decision adds to the growing list of African countries using the Yuan, namely Ghana, Nigeria, Mauritius or Zimbabwe.
On the occasion of the visit of Chinese Foreign Minister, the two countries launched a first platform of exchange between their currencies. This mechanism will ultimately facilitate transactions between the yuan and the rand and indeed will exclude the need to go through the USD or the Hong Kong dollar.
This desire for China to internationalize its currency is confirmed every day: the announcement of the forthcoming establishment of the Asian Investment and Infrastructure Bank (AIIB), led by Beijing, reinforces this observation. China hopes indeed that investments funded by AIIB ($ 50 billion in the first year), will be made in Chinese currency.
The US decline
Fifty-seven countries are now members of this new institution, including South Africa and Egypt. China with its growing power (GDP exceeded that of the United States last year) now wants to pay with its own money: it has to do that the equivalent of 3,700 billion in foreign exchange reserves. But fluctuations in the dollar and the fall of the euro worry Beijing that would need to be able to directly finance its projects with its national currency.
A study by HSBC states that the yuan exchanges should count by 2020 to half of the transactions carried out by China and abroad. Last year, they accounted for only 20%. In Africa, the issue of the yuan in trade finance is one of the pillars of the new “Chinafrica”. The trade volume between China and Africa has increased twenty-fold since 2000, reaching more than $ 200 billion, nearly twice more important than the United States’.
Much is now in renminbi through the Exim Bank, China Export-Import Bank. According to the RMB Swift tracking tool, over a thousand banks in 85 countries already use the yuan for their transfers. South Africa’s Standard Bank owned at 20% by the Chinese bank ICBC, already authorizes trade regulations in yuan in sixteen countries of the continent and predicts that at least 50% of trade between China and Africa will be denominated in yuan by next year.
The yuan still in development
“The surge of Chinese investment abroad – especially in Africa – is a major factor in this internationalization of the yuan,” says Chinese economist Qu Hongbin. Currently, the yuan only occupies the 5th place of the most used currencies in international trade, far behind the dollar. Indeed, in the shadow of the rising red ticket, there is the China-US standoff.
By directly financing investments, China is strengthening its monetary capacity, which requires the yuan as a standard currency and the weakening of the dollar. Since 2009, Africa is at the heart of this new monetary strategy conducted by Beijing. Zimbabwe had even considered for a moment abandoning its currency to the yuan. A decision that proved essentially to be political.
Today the Bank Reserve of Zimbabwe added the yuan to the list of currencies of its currency basket, with the Japanese yen, the Australian dollar and the Indian rupee; which ultimately strengthens the growing list of African countries using the yuan as its currency.
Many African central banks, such as Nigeria, today have the equivalent of 10% of their foreign exchange reserves denominated in yuan. “It is very clear that a growing number of countries should choose the RMB [Chinese currency] to avoid losses in their trade with China, said a Chinese diplomat. This is a strong currency, already used daily in many Asian countries for their transactions. In Africa, the more trade increase, the more currency will be requested. “