US think tank backs Zim’s use of Chinese currency

Herald Correspondent

Zimbabwe’s use of the Chinese yuan (also known as Renminbi) as a reserve currency is a pioneering initiative and could be one of the key pivots of changing economic dynamics between Africa and China, a study by a think tank from the United States has found.

The Carnegie Endowment for International Peace (CEIP) recently released a study that examined the state of China-Africa economic relations and analysed the impact of the transition of the Chinese economy on the world, and how certain “changes and continuities” would shape the future.

The “internationalisation” of the renminbi (yuan) ranks among four other areas — trade, investment, fiscal stabilisation and people-to-people ties — that are currently being reconfigured in China-Africa economic relations, with potential global impact.

At the same time, Zimbabwe’s trade in minerals such as lithium is another game-changing development, which could boost China-Africa trade and assist Chinese economy overcome slow growth, which some global quarters have been concerned about.

Zimbabwe is a pioneer in Africa and the developing world in adopting the yuan, as it introduced it in 2015 as part of its basket of currencies, with an eye to cream off advantages arising from close political ties as well as a window to clear off debts owed to the Asian giant.

Of late, another African country, Nigeria, is following suit and planning to adopt the yuan as a reserve currency alongside the dollar, hoping to mitigate the adverse effects of naira depreciation and bolster trade relations with China.

CEIP noted that the yuan’s stature as a currency for bilateral transactions is growing and that the “RMB may play an increasing role in Africa-China financial relations”.

“One domain where the RMB’s role could grow is in trade invoicing and settlement between African countries and China,” the think tank said.

It also tied the potential development of the Pan-African Payment and Settlement System (PAPSS) to Chinese efforts to internationalise the RMB.

According to CEIP, another area in which international use of the RMB may increase relates to bilateral currency swap agreements, which aim to deepen bilateral trade by supplying trade credit to local commercial banks of the partner country, allowing direct trade settlement using the RMB and reducing the negative effects of exchange rate volatility.

The internationalisation of the Chinese currency is not only beneficial to countries such as Zimbabwe, but also part of a broader de-dollarisation strategy, with China itself concerned about geopolitical tensions and seeking to reduce the exposure of its international trade and payments.

“In particular,” the think tank said, “China is seeking to reduce the exposure of its cross-border transactions to the US dollar and will continue to do so if trade tensions and other relations with the United States continue to deteriorate.”

Overall, CEIP concluded, the frequency of shocks, rising uncertainty, and geopolitical tensions in the global economy could incentivise both China and a significant number of African countries to consider use of the existing non–US dollar payments’ infrastructure that China has set up over the past decade and a half, since the 2008 financial crisis.

Meanwhile, Zimbabwe is set to play another prominent role in the evolving China-Africa economic relations through mining and beneficiation of minerals, as well as expansion of semi processed agriculture exports.

According to the CEIP, in mineral and metal trade, African exports to China are on a rapid ascent, reaching nearly US$50 billion in 2021 from US$15 billion in 2010. The think tank saw Chinese investments beginning to cover not only the extraction of ores but also the refining and processing of them on the continent.

It said: “Recently announced refining projects by Chinese companies include a US$300 million lithium processing plant, opened in Zimbabwe in June 2023 by Prospect Lithium Zimbabwe; a US$250 million lithium processing plant, opened in October 2023 in Nigeria by Ganfeng Lithium Industry Limited; and others, including in Morocco.”

Zimbabwe is home to Africa’s largest lithium reserves, believed to account for a fifth of the global reserves, and Chinese companies dominate the sector having poured billions in investments over the past few years.

Last year, Zimbabwe began exporting citrus to China, adding to tobacco as a major export commodity, while other agriculture products such as blueberries, macadamia nuts and avocados are set to increase the exports.

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