Duncan Miriri Nairobi
Kenya wants to host a clearing house for China’s currency – a bold African first that would deepen the continent’s ties with Beijing.
A clearing house would allow the renminbi currency, of which yuan is the unit, to become a common settlement currency and could in future be used for official flows, such as bilateral loans and aid that is currently denominated in dollars, experts said.
That means there would be no need to settle in dollars when trading between African currencies and the yuan, an extra step in any transaction that increases the opportunities for arbitrage and so raises costs.
But the real prize for Kenya, or any other African host, would be the symbolism of being the continent’s business gateway with Asia’s economic emperor, even if business starts modestly.
Such an exchange would also be the first outside Asia. Its prospect is a measure of China’s challenge to Africa’s traditional partners in Europe and the US and reflects the increasing attractions of a continent with some of the fastest-growing economies.
“Even if the benefits to business have probably been slightly overblown by diplomats on both sides, I don’t think you can understate the symbolic aspect,” said Shilan Khan, an Africa economist at Capital Economics in London.
China’s ties with Africa have expanded fast.
Last year, the total volume of China-Africa trade reached $198.5 billion (R1.95 trillion), a rise of 19 percent over the previous year, Chinese government figures show. China accounted for 18.1 percent of Africa’s total trade volume in 2012, up from 3.8 percent in 2000.
“The proposal is basically to consider Kenya favourably,” Kenyan Finance Minister Henry Rotich said last month.
South Africa’s financial centre dwarfs Kenya’s and has been mooted as a potential host, though South African officials have not said they were pursuing such a plan.
Rotich also cited rivals such as Nigeria, which already holds some reserves in yuan.
“We are sort of competing and at the end of the day the Chinese government is the one to decide,” Rotich said.
Early signals look good for Kenya. “We are very positive about this clearing house and I think it is very important for Kenya to set up a financial hub here and to process the renminbi,” China’s ambassador to Kenya, Liu Guangyuan, said on the sidelines of a conference in Nairobi yesterday.
Highlighting Nairobi’s enthusiasm for a clearing house based in Kenya’s central bank, Kenyan President Uhuru Kenyatta made his bid for Beijing’s backing during a visit to China last month.
Business between Kenya and China is growing, even if Europe is still a bigger trade partner.
Kenya’s Equity Bank, for example, has opened a branch in Nairobi for Chinese business executives, complete with Chinese tellers to serve them.
“Everyone is trying to clinch a deal to directly clear and settle yuan transaction with the People’s Bank of China,” said an official at a Chinese state think tank that often advises Beijing on policy.
Alongside South Africa, he suggested that Tanzania, a far smaller economy with longstanding ties with Beijing, had been spoken of as a possible site, although he said he believed South Africa might be best suited in Africa.
But even as Africa starts shifting more business east, the hegemony of the dollar seems assured for now.
For a start, the commodities China buys or extracts from Africa are priced in dollars. African dealers also say a deterrent to building more business in yuan is that the currency is tightly managed, while they are wedded to the US unit’s flexibility. – Reuters