Chinese Yuan glitters in Eastern, Southern Africa

ABDUEL ELINAZA

Bank of Tanzania (BoT) Governor Prof Benno Ndulu.

HE central banks in Eastern and Southern Africa have started giving the Chinese Renminbi (Yuan) due consideration as both reserve, investment and settlement currency.

This came as some 20 governors and deputy governors met in Dar es Salaam on Monday to deliberate on Yuan internationalisation, given China’s deepening engagement with Africa. This follows last November decision by IMF Board to include the currency into Special Drawing Rights (SDR) basket and official acceptance this September.

Bank of Tanzania (BoT) Governor Prof Benno Ndulu said the decision to make Yuan international money reflects major shifts in the global economy and China moving towards a “more open and market-based economy”.

“This (meeting) could not have been more appropriate for our region, let alone the central bankers, who will be thinking about how to manage the exchange rates...,” Prof Ndulu said.

The governor said also central banks in the region would put more thinking behind relocating their reserves to match more closely other five currencies that make up SDR basket. Prof Ndulu said that when opening the Macroeconomic and Financial Management Institute of Eastern and Southern Africa that brought bankers and economists from the region and beyond.

He said in the BoT, they have already started using the Chinese currency as reserve in the last two years where 5.0 per cent of total money on foreign reserve is under Renminbi. The US dollar still controls a lion’s share at 60 per cent.

“We were well ahead of IMF,” Prof Ndulu said, adding: “also we buy more Chinese bonds as they pay relative well compared to invest on US or Europe bonds.”

Investec Asset Management Senior Economist Dr Michael Power said central bankers delayed for too long to recognise yuan, which may had a negative impact on trade and investment.

“I have to explain my bias (for Yuan); we wait too long for recognisation of Renminbi. We should have taken the lead and not wait for IMF to endorse it,” Dr Power said.

Dr Power was answering a question from Reserve Bank of Malawi Deputy Governor, Economics, Dr Naomi Ngwira, who wanted to know the action to be taken should India’s rupee head in the same direction.

The one-day forum, according to Prof Ndulu, was more than critical for governors as it provided the necessary platform for fruitful exchange of views and ideas. “This forum will shape our responses to the Renminbi’s envisaged consequential global role,” Prof Ndulu said, adding; “the need for the region to put in place supportive measures to encourage use of the Renminbi”.

In 2014, the volume of trade amounted to 3.7 billion US dollars, 6,000 people from Tanzania went to China to do business. In the same year, the country attracted private capital of over 2.5 billion US dollars and loans of 1.9 billion US dollars from China.

A recent survey has shown that China has more influence on Tanzania than the US, UK, India and South Africa -- or international organisations such as the World Bank.

The study shows that more Tanzanians prefer China as a model for Tanzania’s development, at 35 per cent, with the US at 30 percent, the UK at 6 pe rcent, and India at 4 per cent and South Africa at 10 per cent.