Let us not fear yuan denominated

08 Jun, 2018 - 00:06 0 Views
Let us not fear yuan denominated

eBusiness Weekly

There has been growing debate throughout Africa about greater use of Chinese Renimbi (the yuan is the principle unit of renimbi) as a trading and reserve currency because ever greater trade from Africa is with China and ever greater investment into Africa is from China.

There are other good arguments as well to place less reliance on using the US dollar in almost all cases as the currency to make and receive payments.

The present American administration is less keen than every other American Government since the Second World War, regardless of whether the US president was nominated by the republican or a democrat parties, to expand the system of global rules and systems and to be bound by them.

The administration of Donald Trump places a greater emphasis on what it sees as American national interests than on advancing a more global economy and is willing to use the huge financial muscle it has by owning the major international reserve currency to advance its own political and economic agendas.

This, as many have noted, will inevitably lead to less reliance by other countries and economic blocks on the US dollar for financial transactions that do not involve America.

China — as the world’s second largest economy, its largest manufacturing economy and the largest importer of raw materials — is obviously well placed to take up some of the slack, as for that matter is the Euro Zone, the core group within the European Community.

This has happened before. The US dollar took over from sterling, and the British pound only achieved its dominance as Britain led the world’s industrial revolution and British adventurers ensured the Bank of England could “print” almost all the new gold-based pounds it needed for expanding trade and production simply by ensuring that almost all the new gold fields opened in the 19th century were, outside California, in the British Empire.

But China is still some distance from being able to take on the burden of allowing its currency to be the major international reserve currency and in any case there might well be good reason why many in the global part of the economy might be wary in future on placing too heavy a reliance on the currency of a single country. But certainly, we can foresee that renimbi, or the yuan, will be right up there as a major component in most mixes with the dollar and the euro, with other currencies, such as Japanese yen, playing their part.

China itself will have to press ahead with its plans to move the yuan into the position where this is possible. The country has the economic muscle, but the financial systems have to be developed further to match that and the Chinese Government and its monetary authorities also need to develop the structures that make international banking in yuan possible. Few doubt that China can do this. Think back four decades to when China was a great power by courtesy and hardly caused a blip in international trade statistics. But it is not going to be complete tomorrow.

On the other hand Africa is a fairly good place to start looking at denominating more transactions in yuan. China is easily the largest single buyer of African raw materials and must be the largest single investor into African primary products. And to give the Chinese their due their investors are improving the quality of investments as well as the quantity.

For example more processing is being done in Africa, usually for good economic reasons that benefit both sides. At the same time China, being the world’s second largest economy and largest manufacturer, is obviously going to be a major supplier to Africa of all sorts of goods, again on pure economic rather than political grounds.

With trade and financial flows going both ways in significant sums, there is a growing case for an ever-growing part of those flows to be denominated in yuan with clearances of transactions going through the Chinese banking sector, rather than America’s . We need to remember that we are not talking about a process that is all or nothing. It can and should be an ever-growing something.

Africa’s two largest economies are those of Nigeria and South Africa, and both are leading the way with recent currency swop agreements that allow waters to be tested and problems solved while they are on a minor scale. The rest of us can start following suit as the results come in and Zimbabwe, without a currency of its own, can start adding a little something to the mix. We already trade in several currencies, using euros for example in many deals with EU companies, so we are not going to have to reinvent the wheel.

Our opinion is that the Zimbabwean authorities, both national and monetary, should be continually looking for ways that Zimbabweans can do business better, and for ways that allow those who want to buy our stuff and invest here to do so easily and in ways that benefit both parties. We already do a lot of business, in both directions, with Chinese companies and everyone expects that we, along with the rest of the world, will be doing more; this is inevitable as the world economy grows and as China moves into the world’s number one economic slot.

The curiosities of African-Chinese trade, at least for primary producers like Zimbabwe, give an opportunity to improve the payment and other financial aspects this trade demands, and that inevitably means a greater role for yuan rather than the dollar in such dealings. We should embrace this, rather be fearful.

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