The US imports its debt around the world making other countries carry the risk of hoarding the currency. The rising US dollar is now a cause of concern for Africa as countries on the continent are unable to repay their debt. As the US dollar rises, nations in Africa have to shell out a bigger amount for debt repayment leading to a deficit. For the uninitiated, a trade deficit occurs when a nation imports more than it exports in a financial year. However, BRICS member China is making use of the opportunity by pushing the Chinese Yuan ahead of the US dollar in Africa.
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BRICS member China is encouraging Africa to use local currencies like the Chinese Yuan and ditch the US dollar. Africa stands to gain in this situation as the Chinese Yuan is cheaper for debt repayment than the US dollar. The development plays straight into the hands of BRICS who kickstarted the de-dollarization process.
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BRICS: China Advances Chinese Yuan in Africa, Tries Pushing US Dollar Behind
BRICS country China began issuing ‘Panda’ bonds which are renminbi-denominated to nations in Africa in its de-dollarization bid. The move helps Africa in debt repayment and could ditch the US dollar using the Chinese Yuan to protect its interests. “In the future, the Fed will matter a little less, and the People’s Bank of China will matter a little more,” said Charlie Robertson, Head of Macro Strategy at FIM Partners.
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“We are at a tipping point in Africa,” he said, indicating that Africa could eventually begin using the Chinese Yuan. “I have no doubt that China will push hard for more trade and debt to be issued in its currency. The inducement today that Chinese interest rates are lower than in the US,” he said.
“It makes perfect sense to trade in (the yuan) with your (Africa) largest trading partner,” he summed it up. Read here to know how many sectors in the US will be affected if BRICS ditches the dollar for trade.