Renminbi in Africa: Progress and Challenges
One important aspect of China-africa financial cooperation is to expand the renminbi’s use in bilateral economic and trade exchanges. Despite progresses made, the renminbi’s current use in Africa has many limitations in terms of size and scope of functions.
The Johannesburg Summit of the Forum on China-africa Cooperation in December 2015 has elevated China-africa relations to a comprehensive strategic cooperative partnership and opened a new era of win-win cooperation and common development for bilateral ties. To promote all-round industrialization and agricultural modernization in Africa and to extricate the continent from its development plight, China is providing $60 billion in funds for 10 major cooperative projects. Financial cooperation is a top priority as it plays an extremely important role in advancing pragmatic cooperation between China and Africa. One important aspect of China-africa financial cooperation is to expand the use of the renminbi in bilateral economic and trade exchanges, in order to avoid currency risks, lower trade costs and inject new vitality into the transformation and upgrading of the economic and trade cooperation. But even as the renminbi’s internationalization in Africa advances, there are still problems and challenges to be overcome.
Progress of the Renminbi’s Internationalization in Africa
The renminbi’s internationalization was officially launched in 2009, when the People’s Bank of China started to experiment with the renminbi
settlement in cross-border trade. Since then, some progress has been made in the renminbi’s internationalization in Africa.
First, the renminbi-denominated settlement in cross-border trade has grown rapidly. By 2014, 18 African countries had adopted the renminbi-denominated settlements in China-africa trade and it is estimated that the renminbi settlement of bilateral cross-border trade will amount to $15 billion in 2015. According to SWIFT, in 2015 the use of the renminbi as a means of payment in South Africa increased by 33 percent compared with that in 2014, and by 191 percent compared with that in 2013. In June 2015, one-third of direct payments between South Africa and China (including the Chinese mainland and Hong Kong Special Administrative Region) were settled in the renminbi, while the proportion was only one-tenth in 2014. Statistics from the Bank of China show that while the trade volume between China and Africa declined in the first three quarters of 2015, the renminbi receipts and payments in Africa were still sharply rising. In the first 10 months of 2015, cross-border renminbi receipts and payments in Africa grew by 35 percent to over 126.6 billion yuan. Of that, the renminbi receipts and payments in the Johannesburg branch of the Bank of China reached 61.6 billion yuan, accounting for almost half the total. In addition, South Africa’s Standard Bank and the Standard Chartered Bank are actively conducting cross-border renminbi-denominated settlement. Standard Bank is the first foreign bank to provide Chinese enterprises products and services in trade financing, cash management, securities and the financial market in the renminbi.
Second, the renminbi is becoming a foreign exchange reserve asset in many African countries, with new breakthroughs achieved in currency swaps. In April 2015, the People’s Bank of China and the South African Reserve Bank signed a 30 billion yuan (approximately 54 billion South African rand) bilateral currency swap agreement. This is an important measure by the governments of China and South Africa to facilitate bilateral trade and investment and safeguard regional financial security, and also a milestone