adminwith Africa being made using the currency unit by 2015, a research study has shown.
Currency internationalisation is defined as the widespread use of a currency outside the original country.
It is determined by the demand other countries have for that currency.
This depends on the amount of business that is performed between the countries and or the perceived value of the currency as a good store of value.
Quoting a report authored by Standard Bank Group of China economist Mr Jeremy Stevens, a financial magazine, The Asset, reported that US$100 billion in renminbi-denominated trade by 2015 amounts to more than double the Sino-African trade last year.
Mr Stevens projected that at least US$10 billion of Chinese investment into Africa will be denominated in renminbi during the same period.
He said the main benefits for Africa of renminbi internationalisation will be cheaper funding and lower transaction costs.
Trade between Zimbabwe and China has registered a phenomenal growth in recent years.
Local observers said the use of the RMB and the possible surge of trade to US$100 billion by 2015 will make RMB a new vehicle currency.
This would then be even much easier for Zimbabwe to adopt the RMB as the official currency for the country and address the liquidity crunch.
“There was a phenomenal growth in trade between Zimbabwe and China in the recent years while at the same time the country has become our major source of foreign direct investment,” former Zimbabwean ambassador to China Chris Mutsvangwa said in an interview.
“It is therefore important to note that dealing with RMB will further enhance the trading relations between Zimbabwe and China and also reduce conversion cost (accrued) when dealing with (currencies of) countries.”
“It is also the most attractive way of making sure that ordinary Zimbabweans take advantage of China as one of the emerging economies.
Several traders from Zimbabwe are importing a number of goods from China such as cellphone, generators, computers and textile products.
China, on the other hand, imports mainly minerals and tobacco from Zimbabwe.
Mr Gift Mugano, a Harare-based economist with regional consulting firm Africa Economic Development Strategy, said: “You will realise that everyone
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across the globe is looking east, and China in particular.
“Many traders from Zimbabwe are importing a number of goods from China for reselling although we are still registering a deficit on the trade balance because we import more than we export. The vehicle currency used in these transactions is the US dollar, which has been, in the recent months depreciating against major currencies due to uncertainty of the US debt crisis.
“This has been biting on Zimbabwe importers due to exchange variability. As a result the cost of import had be marginally going up.
“The use of the RMB will solve the challenges of distortions caused by the weakening of the US dollar.”
Mr Stevens said the renminbi internationalisation was the latest demonstration of China’s gradual shifting domestic economic system.
“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,” he said in a report “titled “BRIC-Africa: The Redback’s Rise Is An Opportunity For Africa”.
“The change, which will be gradual, is symptomatic of a more multi-polar world.
He, however, explained that the internationalisation of renminbi was about transactions, that is buyers and sellers doing business using currency which must not be confused with talk about a new global reserve currency.
A reserve currency, on the other hand, is about the desire to hold the renminbi as a store of value. Renminbi internationalisation is about the former, 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 US dollar. “China will embark on a gradual diversification of additional reserves in a manner that prevents instability,” added Mr Stevens
He said Africa can help China reach critical mass with the internationalization process, and that African nations should use the alignment of China’s policy trajectory to its advantage. “China and Africa have a head start: close high-level political relations and robust institutions have been developed over the past decade during which China’s commercial leverage has risen sharply because successes, small and large, have already been plentiful.”
Standard Bank estimates that about 1,500 Chinese firms are operating in the 18 African nations where it has operations.
“There are as many as one million Chinese people in Africa. Firms will want to grow their businesses in Africa, open renminbi accounts and use renminbi products; workers will want to send money home,” says Stevens.
He said that investment in Africa will find support through cheaper sources of funding and better protected capital through hedging instruments.
This will result in more favourable terms for Africa projects. The support for currency internationalisation by political elites also means that funding could be specifically siphoned to renminbi-financed projects.
“Internationalisation will lower transaction costs, enable better working capital and improve risk management practices, which along with various incentives, will support trade flows – especially exports of Chinese-owned and produced manufacturing goods.”
He said African financial institutions will play a critical facilitating role, especially those with a pan-African reach. In money markets, short-term renminbi credit faculties, deposit and call accounts will be demanded.
In global markets, requirements will include a host of trading products.
Mr Stevens noted China will start the programme by targeting African partners which are destinations for sizable Chinese exports, regional heavyweights and have mature financial markets: first Nigeria and South Africa, then Kenya, and afterwards Angola and Ghana.
From the 1970’s, the currency with the highest amount of currency internationalisation was the US dollar.
Online Reporter