TANZANIA is using Yuan in the foreign exchange reserves well ahead of its inclusion into the International Monetary Fund (IMF) elite basket of reserve currencies in September as it seeks to enjoy the benefits of diversification of reserves.
The inclusion of the Chinese currency
also known as Renminbi (RMB) in the foreign exchange reserves is a
prudent diversification of reserves when the currency is globally
accepted in the ranks of the world’s most elite monies.
The Central Bank Governor, Prof Benno
Ndulu, said Tanzania had included Yuan in the foreign exchange reserve
in the last two years and it now accounts to 5.0 per cent of the total
foreign reserves.
“We were well ahead of IMF,” Prof Ndulu
said, “also we buy more Chinese bonds as payback is relative well
compared to invest on US or European bonds,” he said noting it the
Central Bank had reacted proactively in recognition of the steady and
calibrated liberalisation of China’s financial markets. Prof Ndulu said
the IMF decision reflected major shifts in the global economy and China
moving towards a “more open and marketbased economy”.
He said central banks in Eastern and
Southern Africa mull relocating their reserves to match more closely
other five currencies that make up SDR basket. “Greater Renminbi usage
in bilateral transactions will provide further impetus for trade and
investment links between China and the region resulting in benefits for
both sides,” Prof Ndulu said.
Recently, central banks’ governors and
deputy governors, in the region met in Dar es Salaam looking into
possibility of putting in place supportive measures to encourage use of
the Renminbi.
The meeting organised by Macroeconomic
and Financial Management Institute of Eastern and Southern Africa that
drew participants form East African and SADC regions.
“This meeting 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”.
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.
have to explain my biasses (for yuan).
We wait too long before we recognise
Renminbi. We should have taken the lead and not wait for IMF to endorse
it,” Dr Power said. China’s trade with African states has grown about
ten times in the last decade, with the total value likely to hit 300
billion US dollars in 2015. China’s trade with Africa recorded 10
billion US dollars in 2000.
Last year, the figure grew to 220
billion US dollars. China is seeking to raise the amount to 400 billion
US dollars by 2020. There are mainly three benefits of
internationalization of the RMB as it will allows foreign companies
trading with Chinese companies to settle the trade in yuan, hence
reducing foreign exchange cost of trading via third currency. Also open
up the opportunity to the larger markets and often secure better trade
terms.
On financing and borrowing, the creation
of dim sum and offshore RMB bond markets offer yuan borrows the chance
to access a competitive and diversify funding sources. It is also opened
up opportunities for international and retail investors.
The BoT, as per Prof Ndulu, has
experienced that phenomenal it gets handsome return from Chinese bond
that US and EU securities. On capital management front, free trade zone
companies may borrow and lend funds directly with overseas from RMB cash
pooling. This allows companies to centrally manage their funds and make
payments directly in yuan globally.
“The yuan will eventually erode the US
dollar’s global dominance, but not just yet. Beijing is not waiting
though,” writes Chi Lo, a senior economist at BNP Paribas Investment
Partners. BNP is global asset management firm based in France.
Experts have it that a yuan
internationalisation progress, the rapidly expanding offshore of
Renminbi market and greater access to the onshore Chinese market area
also providing opportunities for the central banks to diversify and
hence their portfolio investments
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