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October 12, 2016

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SDR entry expected to boost yuan use in Africa

WITH China’s financial cooperation with African countries going from strength to strength, there has been a rapid rise in the amount of transactions denominated in the yuan.

The trend is expected to pick up pace following the yuan’s recent inclusion in the elite global reserve currency club.

China has long hoped to see a rapid use of the yuan in Africa, commensurate to the importance it attaches to its economic and political cooperation with the continent. Economic trends in eastern and southern Africa show this wish is materializing, as shown by the rising demand and acceptance of the yuan.

In Kenya, CFC Stanbic Bank was among the first major facilitators of the trade and economic relations with the introduction of a direct currency exchange between the yuan and the Kenya Shilling. This helped reduce currency transaction losses in the process.

CFC Stanbic Chief Executive Philip Odera said the expanded trade between African countries and China has made it necessary for traders from African countries to stock up on the yuan to meet constant demand for the Chinese imports.

Kenyan economist Gerishon Ikiara said the growth of the Chinese currency was a guaranteed matter, not a matter of if, but when, depending on the demand factors.

“The Chinese currency, the yuan, was little known in Kenya and indeed the majority of African countries largely because it had not been used much as an international or hard currency in the settlement of trade transactions,” Ikiara said in an interview. “As a result of this, forex bureaus and many other financial institutions rarely handled the Chinese currency partly because both demand and supply were insignificant.”

The International Monetary Fund included the yuan among the currencies on its basket of Special Drawing Rights in what was read as a sign of confidence on China’s economic stability.


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