BRICS member Ethiopia is in talks with China to convert its $5.38 billion worth of loans from the US dollar into the Chinese yuan. Ethiopia owes China $5.38 billion and plans to settle the payments in yuan-denominated loans. The move would bolster the local currency, giving it more strength in the forex markets.
Eyob Tekalign, Ethiopia’s central bank Governor, is in discussions with BRICS member China for a potential swap to pay off loans in the Chinese yuan. Paying in the yuan-denominated loans helps Ethiopia save millions in foreign exchange rates. Paying in the US dollar is a costly affair, and converting the payments to yuan is cheaper. For context, BRICS member India saved close to $7 billion in foreign exchange rates for procuring oil in local currencies.
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BRICS: US Dollar Loans To Be Converted Into Chinese Yuan
China is making all moves to internationalize the Chinese yuan, and BRICS member Ethiopia is considering currency swaps. “China is a very important partner for us now, there is growing volume of trade and investment,” the governor said. “So it really makes sense to arrange some currency swap, but in terms of converting these things as well. So absolutely, this is something in the making — we’ve requested officially and then working on it.”
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However, BRICS member China has not responded to Ethiopia’s request to convert US dollar loans into the Chinese yuan. The People’s Bank of China (PBOC) could most likely approve the request. The development sits well in its quest to make the yuan more suitable for settlements. “There is savings in this,” said Eyob. We’re very, very much enthusiastic about this discussion, but it’s early stage,” he said.
If BRICS members begin to convert loans in the US dollar into Chinese yuan, the greenback will be hit. It would enter a new financial chapter where local currencies call the shots and not the US dollar. The rise of a new multipolar world would hit the nail on the coffin of the USD.
