African countries look at yuan as reserve currency

By Abduel Elinaza
0 Comment(s)Print E-mail, June 21, 2016
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Central banks in Eastern and Southern African are looking into possibility of putting in place supportive measures to encourage use of the Renminbi.

Some 20 governors and deputy governors met in Dar es Salaam, Tanzania on Monday amid growing global demand for yuan after IMF board to include Chinese currency into Special Drawing Rights (SDR) basket.

The meeting organised by Macroeconomic and Financial Management Institute of Eastern and Southern Africa that drew participants form East African and SADC regions.

Bank of Tanzania (BoT) Governor Prof Benno Ndulu said the decision to make yuan international money reflects major shifts in the global economy and China moving towards a "more open and market-based economy".

"Greater Renminbi usage in bilateral transactions will provide further impetus for trade and investment links between China and the region resulting in benefits for both sides," Prof Ndulu said.

The Governor said also central banks in the region would put more thinking behind relocating their reserves to match more closely other five currencies that make up SDR basket.

Prof Ndulu said Bank of Tanzania started using yuan as reserve currency in the last two years where 5.0 per cent of total money on foreign reserves is under Renminbi. Though, still US dollar control a line share on 60 per cent.

"We were well ahead of IMF," Prof Ndulu said. "Also we buy more Chinese bonds as pay back is relative well compared to invest on US or Europe bonds."

Investec Asset Management Senior Economist Dr Michael Power said central bankers delayed for too long to recognise yuan, which may had a negative impact on trade and investment.

"I have to explain my biasness (for yuan) we wait too long for recognising of Renminbi. We should have taken the lead and not wait for IMF to endorse it," Dr Power said.

Dr Power was answering a question from Reserve Bank of Malawi Deputy Governor, Economics Dr Naomi Ngwira, how wanted to know action to be taken should India's rupee head to same direction.

The one-day forum, according to Prof Ndulu, was more than critical for governors as it provided necessary platform for fruitful exchange of views and ideas.

"This forum will shape our responses to the Renminbi's envisaged consequential global role," Prof Ndulu said, adding the need for the region to put in place supportive measures to encourage the use of the Renminbi.

Statistically speaking, China's trade with African states has grown about ten times in the last decade, with the total value likely to hit US$300 billion in 2015.

China's trade with Africa recorded US$10 billion in 2000. In 2014, the figure grew to US$220 billion. China is seeking to raise the amount to US$400 billion by 2020.

Experts have it that a yuan internationalisation progress, the rapidly expanding offshore of Renminbi market and greater access to the onshore Chinese market area also providing opportunities for the central banks to diversify and hence their portfolio investments.

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