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China is to promote the yuan's use in settling trade and investment with Africa, and encourage the more active development of Chinese financial institutions across the continent, a senior central bank official said on Friday.
Li Dongrong, assistant governor of the People's Bank of China, said Africa has the capability of becoming a new hub of international capital flow, and the yuan's use there should be further improved in accordance with rising demand for the currency there.
"We will continue to encourage domestic financial institutions to increase their presence and business across the continent," Li told delegates at the Forum on China-Africa Financial Cooperation in Beijing, adding that the cooperation potential between the two sides is huge, as Africa's economy continues to take off.
According to Li, yuan-denominated settlement between China and some African countries has already started, with 4.3 billion yuan ($156.5 million) worth of settlement made with South Africa and 2.3 trillion yuan with Mauritius, for example.
The popularity of using the yuan has been increasing in Africa, and more central banks are considering including the currency in their reserve portfolios, reported various governors of African central banks at the forum.
Millison Narh, second deputy governor of the Bank of Ghana, said the bank's board of directors has decided to use the yuan as part of its settlement and reserve currencies in January, but has yet to finalise details with the People's Bank of China
"We have looked at the currency rate risk management of the reserve portfolio. I think the yuan has performed very well, supported by the huge international reserves of China. It makes sense to use the yuan as both the settlement currency and the reserve currency."
More African central banks will make similar decisions, and in five years about 20 percent of African central banks' foreign reserve portfolio would be yuan assets, he said.
Use of the yuan remained "quite limited" in Africa, he said, and cautioned some of the recent use of it has been due to the global economic crisis. Any sudden rebound in European economies as well as in the United States would negatively affect wider use of the Chinese currency across Africa as central banks would prefer to hold more euros and dollars as their exchange rates gain strength.
Michael Gondwe, governor of the Bank of Zambia, added that his country is yet to decide on including the yuan in its foreign reserve assets, but it is expecting increased usage of it to settle trade between China and Zambia.
Franklin Kennedy, a non-executive director of the African Export-Import Bank, said he believed using the yuan on the continent was "a natural evolvement - it has to happen", and expects more African central banks to include the currency in their foreign reserve portfolios.
But some African traders seemed much less optimistic about using the yuan to settle transactions or hold the currency.
One trade finance manager at Societe Generale (China) Ltd, who declined to be named, said he has seen little demand among traders to settle deals in yuan, because there is no sound channel to make investment or purchases in yuan after holding the currency.
Akin Olusuyi, managing director and chief executive officer at Nigeria-based Cocoa Products (Ile-Oluji) Ltd, which traded $20 million last year, added that he "wouldn't consider settling transactions with Chinese importers in yuan because as manufacturer we need to import most materials using dollars, a well-recognized international trade currency".
Babacar Ndiaye, the former president of the African Development Bank, said he saw "no reason" why traders would refuse to settle transactions in yuan "when the trade flow increases" between China and Africa.
"It is logical that very soon more and more central banks of Africa will follow Nigeria to include the yuan into their reserves," he said
He added at present it is just the beginning, and central banks would also prefer to buy treasury bonds from China in the future if possible.
(China Daily 07/14/2012 page10)