Zimbabwe: ‘Chinese Currency Gains Ground in Africa’

ZIMBABWE has been urged to follow the example of some Central African countries which have taken the initiative in using the Chinese currency – the yuan. Last month a number of Central African banks were given access to yuan-denominated bonds by the China Development Bank Corporation (CDB).

The CDB, the state-owned lender and a supporter of government projects and Chinese companies looking to expand overseas, set aside part of its three-year dim sum bonds sold last week for African central banks.

This marks the first time that African central banks would be able to invest in yuan-denominated bonds.

The move is perceived an important development in the yuan’s wider use globally.

Ambassador Christopher Mutsvangwa told the Herald Business that the development shows the growing role that the yuan will play in the global economic landscape.

“This is a reflection of the latest trend in the currency reserve strategies of some African countries, which have started to include the renminbi into their foreign exchange reserve portfolios, and it is a strategy that we as Zimbabwe can use,” he said.

It is believed that the central banks of Nigeria and Tanzania made the biggest purchase of the bonds among their African counterparts.

CDB offered 1 billion yuan (US$157 million) of 20-year bonds in Hong Kong, the longest time on record for the market denominated by short-term debt, at a yield of 4,3 percent, and 1,5 billion yuan of three-year notes at a yield of 2,95 percent.

According to the CDB, 60 percent of the bonds were purchased by investors from Europe, the Middle East, and Africa.

Comesa Business Council secretary-general Mr Trust Chikohora has, however, cautioned against Zimbabwe’s greater usage of the yuan until such a time that it becomes commonplace in the global economy.

“As far as introduction of the yuan is concerned, I think we should be guided by what is happening internationally,” he said.

“The questions to ask are: Is the yuan being recognised as a international trading currency across the world? Is it even being used in the region?

“Although there is now talk in the BRICS about moving towards using the yuan, I do not think that this is close to implementation.

“I would suggest that we continue with the current basket of currencies until such a time as the yuan is being used more across the world and in the region,” Mr Chikohora said.

Other observers contend that the recent issuance of the yuan-denominated bonds to Central African states will bolster two-way capital flows between Africa and China, and marks an important step in the renminbi’s road to becoming a global reserve currency.

Ambassador Mutsvangwa recently called for the monetary authorities to consider a currency swap with China, which he said would help preclude the effects of the present liquidity crunch.

A currency swap is basically a foreign-exchange agreement between two parties to exchange aspects of a loan in one currency for equivalent aspects of an equal in net present value loan in another currency.

He said that in 2006 the Chinese government had wanted to do a currency swap with the country, but failed to find any takers.

China has already carried out currency swaps with countries such as Japan and South Korea, and as recently as June this year Brazil and China indicated that they will soon be signing an agreement to swap as much as US$30 billion in their two currencies.

The currency swap, worth 60 billion reais or 190 billion yuan, is touted as the first step in a broader agreement with Russia, India and South Africa to allow members of the BRICS (Brazil, Russia, India, China and South Africa) group of emerging markets to pool resources to better deal with the global financial crisis.

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