African nations consider yuan as possible currency backup

Johannesburg — The Chinese yuan has fallen under the spotlight once again as 17 top central banks and government officials from 14 nations in Eastern and Southern Africa are meeting to discuss the possibilities of adopting the Chinese Renminbi (RMB) as part of a reserve currency management initiative by central banks in the region.

The idea emerged at the 2018 MEFMI Forum for Eastern and Southern African permanent secretaries of the Ministry of Finance and deputy governors of central banks in Harare.

MEFMI is a regional institute with 14 member countries: Angola, Botswana, Burundi, Kenya, Lesotho, Malawi, Mozambique, Namibia, Rwanda, Swaziland, Tanzania, Uganda, Zambia and Zimbabwe.

As Africa grapples with huge debt and has been unable to increase its portfolio investments, adopting the yuan as a reserve currency may help develop their economy.

With the theme, “Trends in Sovereign Reserve Management,” so far opinions at the forum have been positive.

“Regional economies will find financial benefits from new currency reserve management systems,” said MEFMI Executive Director Dr. Caleb Fundanga.

Dr. Khukupile Mlambo, a representative with the Reserve Bank of Zimbabwe felt that embracing the RMB could safeguard regional financial stability and said, “The reserve currency management is critical if we want to enhance currency management, so we should focus on how we can unlock trade value in the future.”

Ritesh Anand, vice CEO of Crown Agents Investment Management said they are grappling with the challenges they face on most occasions as a result of failure to pay debts.

“The rise of the RMB in the special drawing rights (SDR) basket of currencies should enable economies to repay multilateral debts using the Asian nation’s currency,” Anand explained.

Since the International Monetary Fund (IMF) added the renminbi to the list of the Special Drawing Rights basket, global banks are replacing their currency reserves with the yuan.

Last year, the European Central Bank converted €500 million worth of its US dollar reserves into the Chinese currency. This year, Nigeria signed a currency swap worth $2.4 billion with China in March, allowing companies to avoid the difficulty of dealing in dollars while doing business in China and vice-versa.

And on Tuesday, Quartz media released a report and said, “There is growing momentum to adopt China’s yuan as a reserve currency in Africa.”