TwoclerksshowRenminbi(left)banknoteandKenyanShilling(right)banknoteatthenewbranchoftheNationalBankofKenyainNairobionJuly22SUNRUIBOChina鈥檚risingglobalstatureovertherecentpastlendsthecountrytoplayanimportantroleinshapingtheeconomicgrowthanddevelopmentagendaoftheworldeconomy.ThishasmanifestedinChina鈥檚ownagendaintheG20andtheInternationalMonetaryFund(IMF),alongwiththeglobalmonetaryandfinancialsystems,internationaltradeandinvestmentpolicies,includingthosepoliciesaimedatinternationalizationoftheChinesecurrency,renminbi.
Now,ofgreatimportanceforChina鈥檚partnersistheneedforthelargestmanufacturingeconomyandexporterofgoodstotakealeadingroletointernationalizeitscurrency.Thecalltointernationalizetherenminbihasbroughtintosharpfocusdebateontheneedforthecurrencytoassumeagreaterglobalroleeitherasareservecurrencyorasamediumofexchangeininternationaltrade.Theseeffortstookaturnforthebetterin2016whentherenminbijoinedtheIMFbasketofreservecurrencies.TherenminbithenbecameamajorpartofcurrenciesthatmakeuptheSpecialDrawingRight-analternativereserveassettotheU.S.dollar.IteffectivelyjoinedtheU.S.dollar,theeuro,theyenandtheBritishpound,whichdeterminescurrenciesthatcountriescanreceiveaspartofloansofferedbytheIMF.
Whiletheglobaleconomytookawaitand-seeapproach,AfricancountrieswhohaverecentlybenefitedfromChinesegrantsandloanstobuildtheirinfrastructure,welcomedtheIMFgesturetoadopttherenminbiasareservecurrency.
Africa鈥檚financialleadersmeet
BecauseofincreasedtradeandmoreloansandgrantsbeingreceivedbyAfricancountriesfromChina,Africahasbeenontheforefrontofevaluatingthepossibilityofadoptingtherenminbiasareservecurrency-acurrencythatacountryholdsinsignificantquantitiesaspartofitsforeignexchangereservesforuseininternationaltransactions,internationalinvestmentsandallaspectsoftheglobaleconomy.
Inthelastdecade,AfricahasbeenpartneringwithChinainexchangeofgoodsandservicesandinfrastructuraldevelopment,afactorthatgreatlyinfluencedtheholdingofa14-nationmeetinginHarare,ZimbabweinMaytodiscussthepossibilityandviabilityofusingtherenminbiasareservecurrency.Themeeting,themedTrendsinSovereignReserveManagement,attractedhigh-levelparticipationfromcentralbankchiefsofAfricancountries,officialsfromtheAfricanDevelopmentBankanddelegatesfromAfrica鈥檚ministriesoffinance.ThecountriesinattendanceincludedKenya,Lesotho,Namibia,Tanzania,ZambiaandZimbabwe.
ThemeetinginHararewasheldatatimewhentheIMF鈥檚dataindicatethattheU.S.dollar鈥檚shareofcurrencyreservesreportedbytheIMFfellinthefirstquarterof2018toafour-yearlow,whiletheeuro,therenminbiandthesterling鈥檚sharesofreservesincreased.AfricaneconomiesgrowingintraderelationswithChinahavegreatlysupportedtheneedtoholdtheircurrencyreservesinrenminbi.
ChinaremainsAfrica鈥檚biggesttradingpartnerandmanyChinesecompanieshaveinvestedheavilyinconstruction,manufacturing,services,agricultureandinfrastructuredevelopment.Today,morethanever,therenminbiisgainingglobalappellationasalegaltender.Already,someAfricancountriessuchasAngolaandZimbabwehaveadoptedrenminbiastheirreservecurrency.Nigeria,whichisoneofAfrica鈥檚biggesteconomies,hasnearly10percentofitsreservesinrenminbi.ThisismeritoriousasitallowsconversionoflocalcurrenciestorenminbiwithoutfirsthavingtoconverttoU.S.dollars,therebyavertingexchangelossesintrade.Onitsown,thisisasignalthattheU.S.dollar,asamajorreservecurrency,hasreacheditsoptimumlevelanditsroleasaglobalcurrencyisnowonthedrainasthatoftherenminbirises.
Africaasatradingbloc
AsAfricagraduallyadoptstheChinesecurrency,thecontinent鈥檚exportsstandtogainvalue.Localfirmsstandachanceforincreasedprospectsforbetterreturns,whiletherewillbedirectimpactonbuildingAfrica鈥檚humancapitalcapacitybyinspiringagenerationofinnovatorswhowillbeabsorbedintheworkforceofAfricaneconomies.
FortheAfricancontinent,tobestrongerasatradingbloc,itisinevitablyimportanttoadoptcompetitiveglobalcurrencies,awayfromthetraditionalreverenceoftheU.S.dollar,theBritishpoundorrecentlytheeuro.Inaddition,China-AfricarelationswillflourishwiththeBeltandRoadInitiative,envisagedtogrowtradeandtosafeguardAfrica鈥檚currencyfromlocalcurrencyvolatilities.
Also,byadoptingrenminbiasareservecurrency,Africancountrieswillbeabletocarryoutinternationaltradeatbothbilateralandmultilaterallevels,becauseitwillbeeasiertomakeinternationaltransactionsbetweenmanycountriesthatrequirediversecurrenciesforfinancialsettlements.SinceSino-Africantradehasgrowninleapsandbounds,it鈥檚onlyprudentforAfricaneconomiestoholdtheirreservesinrenminbiasopposedtootherforeigncurrencies.TherearealsoforeigndebtsbetweenAfricaandChina.ThishasledtotheneedfordebtsettlementsinrenminbiratherthanthedollarsandhencethereisaneedforAfricancountriestomodifytheirforeigncurrencyportfoliosinfavoroftherenminbi.WithmoreloansexpectedfromChinatoAfrica,AfricancountrieswillrequiremoreChinesecurrencytopayoffdebts.
Challengesahead
Despitethefar-reachingbenefitsfortherenminbiasareservecurrencyforAfricannations,thereisstillgreatconcernthatkeepingrenminbiasareservecurrencywillmakeAfricaneconomieshighlydependentonit.Thiswillnegatethegainsmadeindoingawaywiththeoverdependenceononecurrencyforinternationaltransactions.
Inaddition,therearefearsthattherenminbimayleadtoilliquidityforAfricannations,especiallyduetoinconvertibility,sincenotallcountrieswilladoptrenminbiasaninternationalcurrencyforsettlingobligationsbetweenthem.ThisisalsoevidencedbythelessimpressiveattendanceattheHararemeetingwhereonly14outofthe54countriesthatmakeuptheAfricaneconomywerepresent.
ThestrengthoftherenminbiisanchoredonChina鈥檚stablegovernancesystem.AstheEUwithersawaywiththeBrexitdebacle,sotoowilltheeuro.Therenminbiwillsurelygivetheothermajorglobalcurrenciesaformidablerunfortheirmoneyasthepreferredreservecurrencyintheworld.
**ThewriterisaKenyaneconomist,consultantandaregionalcommentatorontradeandinvestment
**Commentsto