Renminbi may replace dollar in Sino-African trade

In a sign of China’s growing influence as Africa’s largest trading partner and investor, Standard Bank estimated that up to 40%, or $100bn, of China’s trade would be denominated in renminbi by 2015.

SURE KAMHUNGA
Published: 2011/08/30 06:40:31 AM

CHINA’s renminbi could replace the dollar as the main currency to finance trade between Chinese and African countries, research by Standard Bank shows.

In a sign of China’s growing influence as Africa’s largest trading partner and investor, Standard Bank estimated that up to 40%, or $100bn, of China’s trade would be denominated in renminbi by 2015.

This amounted to more than the total Sino-African trade last year, the bank’s Beijing-based economist Jeremy Stevens said in a research paper released yesterday .

"In addition, at least $10bn of Chinese investment in Africa will be denominated in renminbi over the same period," he said.

The Chinese currency already accounts for 13% of the South African Reserve Bank’s trade- weighted exchange rate for the rand, making it the third most important currency in the basket. Mr Stevens said China had no intention of "dumping" the dollar, but merely wanted to broaden its currency’s geographical reach and allow the renminbi to be used for investment purposes.

"The change, which will be gradual, is symptomatic of a more multi polar world," he said.

The bulk of China’s estimated $3,2-trillion in official reserves was still dollar-denominated, including $1,1-trillion in US Treasury bonds .

However, the use of the renminbi showed that many companies, including some in SA, were becoming comfortable transacting in the currency, Peter Sun, Standard Chartered Bank’s MD of transactional banking, said last week.

The dollar has traditionally been the historical benchmark currency used by African companies trading or doing business with foreign partners, including China.

The increasing use of the renminbi follows the recent, unusual public criticism by China of US economic policies after the dollar’s drop following the country’s credit rating downgrade by Standards & Poor’s.

But the growing "internationalisation" of the renminbi as a currency for payments in Africa was evident, said Mr Stevens.

Standard Chartered last year opened its first African onshore renminbi trading account for local metals trader Portland Steel, joining Standard Bank, which already offers facilities allowing clients to make or receive payments in renminbi.

"China wants to increase the pairs against which the renminbi can trade, broaden the currency’s geographical reach and allow the renminbi for investment purposes ," Mr Stevens said.

He said the use of the Chinese currency should not be confused with talk about a new global reserve currency.

The clamour has been rising steadily for a global reserve currency, which would give more weight to developing countries, reflecting their growing importance in the world economy.

"Internationalisation is first about transactions: buyers and sellers doing business in the currency. A reserve currency, on the other hand, is about the desire to hold the renminbi as a store of value," Mr Stevens said.

"Renminbi internationalisation is about transactions, intending to add efficiency and resilience to China’s trade and investment flows. China is not about to dump US treasuries in some maligned quest to trigger a financial collapse and depreciation of the dollar. China will embark on a gradual diversification of additional reserves in a manner that prevents instability."

Mr Stevens said that China would start the renminbi internationalisation programme by targeting African partners which are destinations for sizeable Chinese exports, regional heavyweights and countries which had mature financial markets — "first Nigeria and SA, then Kenya, and afterwards Angola and Ghana".

kamhungas@bdfm.co.za

http://www.businessday.co.za/articles/C ... ?id=151958