Chinese Yuan to Become Reserve Currency of Lesotho?

LESOTHO is among 14 eastern and southern African countries that are considering the adoption of the Chinese yuan as a reserve currency to facilitate the repayment of loans being advanced by the Asian economic giant for infrastructural developments.

A team of Central Bank of Lesotho (CBL) officials recently joined their eastern and southern African counterparts for a meeting on the adoption of the yuan in Harare, Zimbabwe.

The Harare meeting was organised by the Macroeconomic and Financial Management Institute of Eastern and Southern Africa (MEFMI), an association which groups together 14 countries namely, Lesotho, Angola, Botswana, Burundi, Kenya, Malawi, Mozambique, Namibia, Rwanda, Swaziland, Tanzania, Uganda, Zambia and Zimbabwe.

Lesotho was represented at the Harare meeting by Central Bank of Lesotho (CBL) Deputy Governor, Masilo Makhetha, and other officials from the ministry of finance.

The meeting was held under the theme ‘Trends in Sovereign Reserve Management’.

Central Bank of Lesotho (CBL) officials recently told the Lesotho Times that adopting the yuan as reserve currency in Lesotho will facilitate financial transactions between China and Lesotho especially as China had become an important lender to Lesotho for infrastructural development.

Some of the major projects that have been undertaken with Chinese funding include the construction of the new State House. Last week, the government and the Export-Import Bank of China (EXIM) signed a M1, 4 billion concessionary loan agreement for the construction of the 92 kilometre Ha Mpiti-Sehlabathebe road in the Qacha’s Nek district.

The Chinese government has already said that more infrastructure projects are likely to be concluded when Lesotho joins other African countries at the Forum of China-Africa Cooperation (FOCAC) summit which will be held in September this year in Beijing.
In the aftermath of the Harare meeting, the CBL officials Nkhahle Marumo (Head of Reserves), Mohau Seoela (Market and Risk Analyst) and Bohlale Phakoe (Director Financial Markets) told the Lesotho Times that the influence and the scope of the Chinese yuan as a ‘reserve currency’ was on the rise in Africa and beyond.

Mr Mohau said even the International Monetary Fund (IMF) had accepted Chinese Yuan as a reserve currency and its adoption by Lesotho would facilitate “smooth trade” between the two countries.

“For smooth trade it was discussed at the meeting in Harare that since China is the second largest economy in the world (after the United States of America) and has made it to the top five of Special Drawing Rights (SDR) list, the Chinese currency might as well be one of the major trading currencies (for MEFMI countries),” Mr Mohau said.

For his part, Mr Nkhahle explained that since China had emerged as a significant provider of development assistance and loans, it made sense for Lesotho to adopt the yuan to facilitate loan repayments, a task that was much more difficult when done through the maloti currency.

“Adopting the yuan as a reserve currency in Lesotho will expedite financial transactions,” Mr Nkhahle said.

Mr Phakoe said that MEFMI countries including Lesotho had either received aid or loans from China and that justified the adoption of the yuan as reserve currency for the repayment of those loans.

He said it was time for policy makers in MEFMI countries including Lesotho to take rapid steps to adopt the yuan.
He however, said this did not mean that the yuan would be used for everyday transactions in Lesotho in the same manner as the South African Rand.

“The yuan will not be used on daily basis by ordinary citizens. We are not going to feel the use of the yuan in the country and everything will continue to be normal for ordinary citizens as it will only be the CBL who will be using the yuan to repay Chinese loans,” Mr Phakoe said.

Prior to the Harare meeting a fortnight ago, MEFMI spokesperson, Gladys Siwela-Jadagu, said the bulk of reserves for most countries in the eastern and southern region were in American dollars and this was not in line with the current reality in the world economy where China and India had emerged as the major trading partners for the region.

“Most countries in the MEFMI region have loans or grants from China and it would only make economic sense to repay in the Chinese yuan.
“With China as the largest trading partner of over 130 countries, the main challenge for African countries is how to benefit from the new pattern of international commerce,” Ms Siwela-Jadagu said.

She warned that the continent could not afford to lag behind in taking advantage of growth-enhancing opportunities with China as it had been clear over the last five years that trade and investment with the West continued to be limited.

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Source: Lesotho Times

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