Dr Ariel Ngnitedem (PhD), Economic Scholar and Public Finance Expert, talks on the performance of the Chinese currency, the Yuan.
What do we understand by the interchangeability of the Chinese Yuan and the Central Africa Francs?
Simply put, it means that the two currencies can now be interchanged or can be converted into each other. In other words, it means that an owner of CFA francs can convert them into Yuan and an owner of Yuan can convert them into CFA francs directly without having to go through an intermediate currency like Euro or Dollar as it used to be the case before the agreement between Congo and China was signed.
It means also that, the CFA is not peg only to the Euro as it used to be the case, but from now on, the CFA franc will be pegged to another currency namely the Yuan. Although the exchange rate is still to be defined by the shareholders of both currencies, the interchangeability of the two currencies means that Central African and Chinese businessmen and women who trade in these currencies would not have to suffer from the exposure to the exchange rate risk twice anymore.
They will henceforth face the exchange rate risk only once which is some good news for the Chinese and Central African economies.
What could have motivated such a move between the sub-region and China?
The motivation behind such a move between the Central Africa sub-region and China is twofold. The first concerns the strengthening of bilateral economic relationships between China and the sub-region through the intensification of trade activities between the two parties. This would help to boost Chinese exports to Africa, in general, and central Africa, in particular, and by so doing it would contribute to job creation and economic growth in China.
The second motivation has to do with the industrialization of the Central Africa sub-region which is a bold move away from the French logic-based solely on trade activities. This motivation is equally shared by both parties as the interchangeability of the two currencies will ease the sub-region countries access to Chinese investments.
What is the impact of such an agreement to trade between countries of the region and Cameroon in particular?
The impact of such an agreement on trade between the countries of the sub-region and China is huge, especially for countries like Cameroon and Congo that have strong bilateral trade ties with China. By by-passing the intermediate currency between the Chinese Yuan and the Central Africa CFA franc, the cost of goods and services from and to these countries will be lowered; the selling price will henceforth decrease. This will in turn improve the competitiveness of Cameroon goods and raw materials exported into the Chinese market.