With China’s increasing trade with Africa, local economists say entering into a currency swap deal with the world’s second largest economy presents many benefits, including managing risks associated with currency fluctuations.
The economists’ views follow Reserve Bank of Malawi’s (RBM) sentiments that China, along with its currency and institutions, are approved for transactions within its investment policies.
RBM spokesperson Mbane Ngwira said in an interview on Tuesday that currency swaps are one of the instruments available to the central bank to exploit.
He said: “Swaps are one of the instruments we use all over and we have different swaps with different institutions all over the world. There is nothing preventing us from doing currency swap with China just as we do others.”
If done with China, the swap arrangement would enable investors in China to pay a Chinese business in Malawi.
Economic statistician Alick Nyasulu, in an e-mail response on Tuesday, said a currency swap deal with China would help manage the risks associated with foreign currency fluctuations, especially the dollar which is the main trading currency.
He said: “The yuan provides an alternative given the increasing trade with China and the ability to trade with them in yuan as opposed to dollars. The catch is to ensure that the currency swap is a much longer term deal as opposed to short-term.”
On his part, University of Malawi’s Chancellor College economics professor Ben Kaluwa said government would do businesses a great deal if it strikes a currency deal with China given the growing trade activities between the two countries.
“This is a good direction that Malawi and the rest of African countries should be considering as China has become Africa’s major business partner,” he said.
“China has become a major source of foreign direct investment for Malawi and other African countries. Looking at our economy today, you will see that we have a lot of Chinese companies producing things that we are not, an indication that China is a big economy.”
The yuan has of late come under spotlight, with calls from various sectors, including the Macroeconomic and Financial Management Institute of Eastern and Southern Africa (Mefmi) appealing to African countries to use it as a reserve currency for the region. Although its use is still limited, yuan is gradually penetrating the African market. Thus far, countries such as Ghana, South Africa, Nigeria and Zimbabwe are using the yuan as part of their settlement and reserve currency.