The Bank of China is pushing the use of the yuan in trades with Zambia and its surrounding countries, as the second largest economy in the world continues to promote de-dollarization worldwide.
The world's fourth-largest lender by assets announced the plan following Zambian President Hakainde Hichilema's September state visit to China when the two countries agreed to continue business in their currencies. The Bank of China is currently the only bank from China in the African nation, acting as a clearing facility.
"We will earnestly act upon our responsibility and leverage our role in Zambia to support other African countries to provide holistic services and products related to RMB and to promote the use of RMB in bilateral trade and economic activities," said Lin Jingzhen, the bank's vice president, according to Bloomberg.
As Africa's second and the world's seventh largest copper producer, Zambia holds significant weight in the global copper market. China is the world's leading consumer of this metal.
The metal makes up 70 percent of Zambia's foreign export earnings. However, the COVID-19 pandemic has caused economic instability, with soaring inflation pushing the kwacha to an unprecedented low in 2023. The country was also drowning in about $12.7 billion in external debt.
In June, China played a crucial role in Zambia's debt restructuring, helping the country secure a $6.3 billion deal with foreign governments. This agreement extends Zambia's debt repayment over 20 years, with a three-year grace period where only interest payments are required.
The deal also made China Zambia's largest official creditor, with $4.1 billion owed solely to the Export-Import Bank of China.
Beyond Africa, China has actively expanded its network of currency swap agreements with over 30 central banks, including recent deals with Argentina and Saudi Arabia.
Last month, the People's Bank of China (PBOC) and the Saudi Central Bank signed a local currency swap agreement valued at 50 billion yuan ($6.93 billion) or 26 billion Saudi riyals, further solidifying bilateral ties.
Top oil exporter Saudi Arabia and energy consumer giant China have been deepening their ties beyond hydrocarbons. China imported $65 billion of Saudi crude in 2022, making up 83 percent of Saudi exports to the East Asian nation. The currency swap deal expands their collaboration into other areas, like security and technology.
China's de-dollarization efforts are working
Analysts note that despite facing economic challenges, China's efforts to promote the yuan in global trade and finance are showing some progress.
According to French investment bank Natixis' chief economist, the yuan's share jumped from 1.9 percent in January to 3.6 percent in October. The PBOC also observed a significant surge in yuan-denominated current account transactions. Roughly 30 percent of China's goods and services imports and exports are now settled in yuan. This shift stems from a combination of factors, with geopolitical considerations playing a key role.
"That very same weak renminbi has achieved something quite impressive in 2023: a fast increase in its cross-border use," Alicia Garcia-Herrero wrote in the Financial Times on Wednesday.
Since China has its own payment system for international trade, which makes it hard to track how much the yuan is being used, the total could be undercounted.
China increased its share of cross-border lending to further establish the yuan as a global currency. As of October this year, China accounts for 28 percent of all cross-border loans, a significant jump from 17 percent just at the end of 2021.
Despite the yuan's global gains, Garcia-Herrero warned that foreign investment in China's onshore markets remains weak. This suggests the yuan is still struggling as an investment currency.