China’s plan to internationalise yuan quietly takes a step forward as Zambia gets on board

As of January, Zambia has begun collecting taxes and royalties from Chinese mining firms in yuan, and will cycle the currency directly back to Beijing to fund imports and service loans. Experts said the shift reflected the southern African country’s urgent need to ease a US dollar shortage and manage debt, rather than geopolitical alignment, but also a quiet advance for China’s long-term strategy to internationalise its currency. It had also created a tangible blueprint for other resource-rich, debt-laden African nations with deep trade ties to China, they added. Dr Charles Mak of the University of Bristol Law School interpreted the move as a practical response to acute dollar shortages rather than a political signal. “For a government under severe liquidity pressure, accepting the currency of its largest creditor and trading partner is a rational way to ease balance-of-payments stress, reduce transaction costs and manage debt service more efficiently,” the lecturer and assistant professor said. The move did, however, have wider implications, Mak noted. “Even if it is not intended as a geopolitical statement, it aligns with China’s longer-term objective of gradually expanding the international use of the renminbi, particularly in resource-dependent economies with close trade and financial links to China,” Mak said, referring to the Chinese currency. From China’s perspective, a wider use of the yuan in these settings helped to “reduce currency-mismatch risks and transaction costs for Chinese firms and their counterparties”, he added. Zambia’s mining sector is home to Chinese state-owned giants, such as the China Nonferrous Metal Mining Group, which maintain vast interests across the Copperbelt region of the country. Grieve Chelwa, a Zambian economist at The Africa Institute, Global Studies University, Sharjah, said the move made “financial and fiscal sense”. He said that for a country exporting heavily to China, direct yuan transactions were more efficient than using a third-party currency like the US dollar. “We also export a lot to China, so it makes sense to conduct these transactions directly in yuan rather than going through a third-party currency like the US dollar.” However, the dollar remained a “very dominant” global reserve currency, Chelwa noted, framing it instead as a pragmatic move by a cash-strapped nation. “I don’t see this necessarily as a seismic political step for China’s currency. For now, it is just a decision by a small country like Zambia making a self-interested decision to say, ‘let us see if we can do these transactions in yuan’,” Chelwa said. China accounts for over one-fifth of Zambia’s total imports and is the main buyer of its copper exports. Beijing also remains Zambia’s largest bilateral creditor, holding roughly 30 per cent of its external debt. According to the Zambia Institute for Policy Analysis and Research, the statistics make yuan-based tax collection a practical tool for managing liabilities. Jito Kayumba, special assistant to Zambian President Hakainde Hichilema, said last month that the policy “removes the middleman”. He said that by accepting yuan directly, the Bank of Zambia eliminated the exchange-rate risks and fees that firms had previously incurred when they converted yuan to dollars to pay their taxes. Zambia’s move could set a precedent as the yuan grows its popularity in settling trade. Mak at the University of Bristol expects other resource-rich African countries to follow suit, but only selectively and where policymakers see clear economic benefits. “The yuan is likely to be used as a supplementary currency where it addresses specific liquidity or currency risk problems, especially in states with heavy Chinese debt and strong commodity ties to China,” he said. While the Chinese currency was unlikely to replace the US dollar as the dominant currency for trade and finance, Mak said that “it may become a useful parallel channel in particular sectors, such as mining”. Chelwa at The Africa Institute argued that for other African countries, two conditions must be met – substantial trade with China and Chinese ownership within the domestic resource sector. “In the Zambian case, both conditions hold,” he said, noting that beyond copper, trade involved many intermediate goods. “When those two conditions hold, it makes a lot of sense for the receipts to be collected in yuan.” Zambia is not alone in this “yuan pivot”. Kenya recently converted its railway debt to yuan to save US$250 million in interest, while its East African neighbour Ethiopia is negotiating a similar restructure for US$5 billion of debt.

China’s plan to internationalise yuan quietly takes a step forward as Zambia gets on board

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Decision to repay loans and import costs directly to China in Chinese currency is practical rather than political, experts say

Decision to repay loans and import costs directly to China in Chinese currency is practical rather than political, experts say