When Chinese Premier Li Qiang touched down in Cairo on July 9, the ceremonial handshakes masked a rather more consequential agenda. The currency swap agreements and panda bond arrangements signed between China’s central bank and Egypt represent the latest chapter in Beijing’s methodical campaign to establish Africa as the primary testing laboratory for yuan internationalization.
The choice of Africa as this monetary proving ground reflects cold economic calculation rather than accident. Here lies a continent where China commands substantial trade leverage yet faces minimal resistance to financial experimentation. Africa presents the perfect environment for Beijing to refine its currency strategy before attempting broader global implementation—a laboratory where stakes remain manageable and learning opportunities abundant.
This incremental approach reveals Beijing’s sophisticated understanding of monetary realpolitik. Rather than launching a frontal assault on dollar hegemony, Chinese policymakers have opted for “financial guerrilla warfare”—establishing beachheads in receptive markets while building infrastructure for eventual broader deployment.
The laboratory approach
Africa’s emergence as Beijing’s preferred testing ground stems from converging factors creating an almost ideal experimental environment. The continent’s growing economic ties with China, combined with persistent foreign exchange constraints, have generated both opportunity and necessity for alternative currency arrangements.
China now accounts for 20 percent of Africa’s global trade, up from just 5 percent two decades ago. This expansion has created natural demand for yuan-denominated transactions, particularly as African nations struggle with chronic hard currency shortages. As Lauren Johnston from the AustChina Institute observes, “For China, there may be a chance to test yuan internationalization via a few countries in Africa first, where volumes might be small globally and China’s footprint relatively large.”
The infrastructure supporting this experiment has expanded rapidly. Nigeria renewed its ¥15 billion currency swap agreement in December, allowing direct naira –yuan exchanges bypassing the dollar. South Africa maintains a ¥30 billion arrangement since 2015. Angola has joined this growing club, while Egypt’s recent agreements add another significant player.
Most significantly, the Cross-border Interbank Payment System (CIPS)—China’s SWIFT alternative—has gained substantial African traction. The African Export-Import Bank joined CIPS last month for “faster, cheaper and more autonomous yuan transactions.” Standard Bank, the continent’s largest financial institution, became among the first African banks offering CIPS services.
This infrastructure development constitutes more than technical advancement; it represents foundation for a parallel financial system potentially challenging Western monetary dominance. Yet Beijing’s approach remains deliberately incremental, testing capabilities before attempting more ambitious deployments.
Economic pragmatism over ideology
Yuan internationalization’s African success owes less to Chinese diplomatic pressure than genuine economic benefits appealing to African policymakers and businesses. This pragmatic foundation provides Beijing with sustainable currency expansion platforms built on mutual advantage rather than coercion.
African nations face persistent challenges accessing sufficient foreign currencies for international trade. Traditional hard currencies remain expensive and subject to volatile exchange rates devastating import-dependent economies. The yuan offers attractive alternatives, particularly for countries whose primary trading partner increasingly becomes China rather than Western nations.
Practical benefits extend beyond transaction costs. Currency swap agreements allow African central banks accessing yuan liquidity during foreign exchange stress, providing crucial buffers against external shocks. These arrangements proved particularly valuable during COVID-19, when many African economies faced severe dollar shortages as commodity prices collapsed.
For Chinese companies operating in Africa, yuan internationalization offers equally compelling advantages. Rather than converting profits into dollars before repatriation, businesses can maintain yuan-denominated accounts and conduct direct transactions. This eliminates exchange rate risk and reduces costs, making Chinese investments more profitable.
The China Development Bank’s recent ¥2.1 billion loan with the Development Bank of Southern Africa exemplifies this trend. Such arrangements allow African institutions accessing Chinese capital without dollar volatility exposure, while enabling Chinese lenders deploying domestic currency internationally.
Private sector pioneers
The most compelling evidence of yuan internationalization’s practical appeal emerges from private sector adoption across Africa. Unlike government-to-government agreements that often reflect diplomatic considerations, business usage demonstrates genuine economic utility.
In Kenya, logistics companies have become crucial intermediaries in the yuan ecosystem, offering Kenyan Shilling-yuan conversion services that allow traders to pay in local currency while conducting business with Chinese partners. This innovation eliminates the need for costly dollar intermediation, reducing transaction costs and currency risk for small and medium enterprises.
Klasha, a fintech company specializing in China–Africa trade, exemplifies how private sector innovation drives yuan adoption. The platform enables Chinese merchants to send funds directly to African business counterparts in local currencies, bypassing traditional banking systems and their associated delays and costs. Such services demonstrate how yuan internationalization creates genuine value for businesses rather than merely serving geopolitical objectives.
According to China Daily, private sector business has become the predominant driver of increased yuan uptake across African markets. This organic adoption suggests sustainability that government mandates alone cannot achieve. When businesses voluntarily choose yuan-denominated transactions, they signal confidence in the currency’s stability and utility.
South African importers have discovered particular advantages in yuan invoicing. As RMB analysis reveals, Chinese suppliers often offer discounts on dollar prices when transactions occur in yuan, creating immediate cost savings for African businesses. This pricing advantage reflects Chinese companies’ preference for avoiding currency conversion costs and exchange rate risks.
The incremental reality
Despite impressive yuan usage growth across Africa, the currency’s international role remains fundamentally constrained by Beijing’s policy choices and structural limitations. MERICS analysis highlights strategic dilemmas facing Chinese policymakers balancing yuan internationalization with domestic financial stability.
China confronts what MERICS terms a “broad strategic dilemma”—lacking widely accepted international currency forces Beijing financing global ambitions using other countries’ currencies, yet full currency internationalization would require capital account liberalization Chinese leaders consider too risky.
Limitations become apparent examining broader Chinese international finance contexts. Despite growing African yuan usage, Chinese banks remain “largely reliant on the global dollar network and SWIFT for messaging international payments,” according to CSIS analysis. This dependency constrains Beijing’s ability operating independently of Western financial infrastructure.
Furthermore, yuan internationalization faces structural obstacles extending beyond policy choices. The currency lacks deep, liquid capital markets underpinning dollar dominance. Chinese financial markets remain subject to capital controls limiting foreign investor access. Without addressing these constraints, the yuan cannot achieve broad international acceptance characterizing truly global currencies.
American analysts note that yuan internationalization claims “could both be right depending on how the question is framed.” The currency is internationalizing in bilateral and regional contexts, particularly in China’s developing nation trade relationships. However, it shows little prospect achieving comprehensive international roles genuinely challenging dollar hegemony.
The shadow of devaluation
While yuan internationalization offers African nations genuine benefits, it also exposes them to risks that Western analysis has begun highlighting with increasing urgency. The specter of yuan devaluation presents perhaps the most immediate threat to African economies embracing Chinese currency arrangements.
A decade ago, the Brookings Institution foresaw that a weakening yuan could threaten Africa’s industrial competitiveness. This dynamic would particularly harm African manufacturing sectors already struggling against Chinese competition. When the yuan weakens, Chinese goods become even more attractive to African consumers, potentially devastating local industries.
Historical precedent supports these concerns. During China’s 2015 currency devaluation, African stock markets experienced significant turbulence, with South Africa’s market falling to historic lows. The episode demonstrated how African financial systems remain vulnerable to Chinese monetary policy decisions over which they exercise no control.
The commodity dimension adds another layer of complexity. CNN analysis suggested that yuan devaluation initially worsens prices for African commodity exports before eventually improving them. This volatility creates planning difficulties for African governments dependent on commodity revenues for fiscal stability. Countries like Nigeria, Angola, and South Africa—all participants in yuan internationalization initiatives—face particular exposure to these dynamics.
Sub-Saharan Africa’s currency vulnerability became apparent in 2022, when the region experienced an 8 percent depreciation against the dollar. As African currencies become more closely tied to the yuan through swap agreements and trade arrangements, they risk importing Chinese monetary volatility alongside Chinese investment.
The manufacturing impact deserves particular attention. African Business analysis indicated that yuan devaluation creates short-term pain for domestic African manufacturing while potentially benefiting Eastern African countries like Kenya and Ethiopia that import Chinese machinery and inputs. This uneven impact could exacerbate regional inequalities and create political tensions within the continent.
Sovereignty in the digital age
The emergence of China’s digital yuan (e-CNY) introduces new dimensions to monetary sovereignty concerns that extend far beyond traditional currency arrangements. As African nations increasingly engage with Chinese digital payment systems, they risk ceding control over fundamental aspects of monetary policy and financial oversight.
Yogupay analysis highlights a crucial concern: if trade and finance shift into e-CNY, African governments could lose significant policy space and monetary sovereignty. Unlike traditional currency arrangements that preserve some degree of national control, digital currencies enable unprecedented monitoring and potential manipulation by issuing authorities.
The Sciences Po report on digital sovereignty emphasizes that monetary sovereignty allows nations to control currency and monetary policies, while loss of such control restricts countries’ ability to manage economic cycles. For African nations with limited institutional capacity, this loss could prove particularly damaging during economic crises when flexible monetary policy becomes essential.
The concern extends beyond theoretical possibilities. As Compact Magazine observes, de-dollarization risks simply replacing dollar dependence with yuan or ruble dependence rather than achieving true monetary sovereignty. African nations embracing yuan internationalization may discover they have merely exchanged one form of external control for another, potentially more intrusive alternative.
The digital dimension amplifies these risks. Unlike physical currency transactions that maintain some degree of privacy and autonomy, digital yuan transactions occur within systems controlled entirely by Chinese authorities. This arrangement grants Beijing unprecedented visibility into African economic activities and potential leverage over African policy decisions.
The challenge becomes particularly acute for African countries with weak institutional frameworks. Nations lacking robust financial regulatory systems may find themselves unable to monitor or control digital yuan flows within their economies, effectively surrendering monetary sovereignty to Chinese authorities.
Geopolitical undercurrents and global dedollarization
While economic pragmatism drives much African yuan adoption, geopolitical considerations provide increasingly important backdrops. Russian foreign exchange reserves freezing following Ukraine invasion demonstrated vulnerability from dependence on Western-controlled financial systems. This lesson hasn’t been lost on Chinese policymakers or African counterparts.
Beijing’s CIPS development represents direct responses to financial sanctions concerns and payment system access. By creating SWIFT alternatives operating outside Western legal jurisdiction, China offers partner nations financial autonomy degrees traditional banking systems cannot provide. For African countries experiencing Western sanctions or fearing future restrictions, this alternative infrastructure holds obvious appeal.
The BRICS dimension adds complexity layers to African yuan internationalization. Both Egypt and South Africa are BRICS members, and their yuan-based financial arrangements adoption aligns with the bloc’s broader agenda reducing Western financial system dependence. As Johnston notes, these represent “important African economies, but not important economies internationally,” making them ideal yuan internationalization testing candidates without triggering significant Western resistance.
The Saudi precedent
China’s success establishing yuan arrangements with Saudi Arabia provides a template for African engagement that reveals both opportunities and constraints. The $7 billion currency swap agreement signed between China and Saudi Arabia in November 2023 represents a significant milestone in dedollarization efforts.
The Saudi arrangement demonstrates how China leverages trade relationships to advance currency objectives. As Asia Society analysis indicates, while complete de-dollarization of oil trade remains unlikely over the next five years, gradual erosion of dollar use appears inevitable. Saudi Arabia’s willingness to price oil sales to China in yuan signals broader acceptance of alternative currency arrangements among major commodity exporters.
The mBridge central bank digital currency initiative, which Saudi Arabia joined in 2024, provides additional infrastructure for yuan-denominated transactions. This platform offers immediate, low-cost, cross-border currency transactions that Saudi Arabia can use for oil sales to China, bypassing traditional dollar-denominated systems entirely.
For African nations, the Saudi precedent suggests that yuan internationalization can coexist with continued dollar usage in other contexts. Rather than requiring complete currency substitution, China’s approach allows gradual adoption based on practical considerations and bilateral trade patterns.
The Iranian model
Iran’s experience with yuan internationalization under sanctions provides insights into how African nations might navigate Western pressure while embracing Chinese currency arrangements. The Atlantic Council notes that Iran, Russia, and China have created an alternative market for sanctioned oil, with payments denominated in Chinese currency.
The 25-year cooperation agreement between Iran and China, signed in March 2021, demonstrates how currency arrangements can anchor broader strategic partnerships. This comprehensive framework extends beyond simple trade facilitation to encompass political, strategic, and economic cooperation across multiple sectors.
Iran’s proposal for a new currency to facilitate trade with China, Russia, India, and Pakistan within the Shanghai Cooperation Organization framework suggests how regional currency arrangements might evolve. For African nations, such multilateral approaches could provide alternatives to bilateral dependence on either dollar or yuan systems.
India’s cautious approach
India’s complex relationship with dedollarization efforts reveals tensions that African nations may also experience. While officially rejecting the idea of replacing the dollar with the yuan, India participates selectively in alternative currency arrangements when they serve its interests.
The Indian position reflects concerns that China uses dedollarization initiatives to advance its own economic agenda rather than creating genuinely multilateral alternatives. India’s External Affairs Minister has stated clearly that India has no intention of moving away from the U.S. dollar, despite participating in some BRICS currency initiatives.
For African nations, India’s approach suggests the possibility of selective engagement with yuan internationalization while maintaining broader dollar relationships. This balanced strategy could allow African countries to capture benefits from Chinese currency arrangements without completely abandoning Western financial systems.
The rupee–yuan dynamics also demonstrate how currency competition can benefit developing nations. J.P. Morgan analysis indicates that dedollarization trends in commodity trade benefit countries like India, China, Brazil, Thailand, and Indonesia by reducing transaction costs and currency risks.
Assessment and future trajectories
Yuan internationalization’s African trajectory suggests futures characterized by gradual expansion rather than revolutionary change. Beijing’s laboratory approach has yielded tangible results—growing trade volumes, expanding infrastructure, increasing institutional adoption—while avoiding risks associated with aggressive strategies.
However, significant obstacles remain. The yuan’s international role continues lagging behind China’s economic weight, reflecting structural constraints that cannot be easily addressed through policy initiatives alone. Full currency internationalization would require fundamental Chinese financial system reforms Beijing appears unwilling to undertake.
The devaluation risks, sovereignty concerns, and geopolitical complexities examined above suggest that African nations face difficult choices as yuan internationalization accelerates. The benefits—reduced transaction costs, improved access to Chinese capital, decreased dependence on volatile Western currencies—come with corresponding risks that require careful management.
The private sector examples demonstrate genuine utility in yuan arrangements, suggesting sustainability beyond government mandates. When businesses voluntarily choose yuan-denominated transactions, they signal confidence in the currency’s practical value. However, this organic adoption also creates dependencies that could prove problematic during periods of Chinese economic stress or policy changes.
The broader dedollarization context reveals that yuan internationalization in Africa forms part of a global trend toward monetary multipolarity. The Saudi, Iranian, and Indian examples suggest different models for engaging with this transition, from comprehensive partnership to selective participation to cautious resistance.
For African nations, the optimal approach likely involves strategic diversification rather than wholesale currency substitution. By maintaining relationships with multiple currency systems while gradually expanding yuan usage in appropriate contexts, African countries can capture benefits while minimizing risks.
The digital dimension adds urgency to these considerations. As China’s digital yuan infrastructure expands globally, African nations must decide whether to embrace these systems or develop alternative approaches that preserve greater monetary sovereignty.
Beijing’s African laboratory has demonstrated both yuan internationalization potential and limitations. The experiment continues, but ultimate success will depend as much on Chinese domestic reforms as African adoption rates. For now, the yuan’s international journey remains work in progress—ambitious in scope but incremental in execution, offering genuine benefits alongside significant risks that African policymakers ignore at their peril.
The global monetary order appears moving toward fragmentation rather than simple dollar replacement. In this emerging system, Africa’s role as China’s currency laboratory may prove less important than its ability to navigate between competing monetary systems while preserving economic sovereignty and development opportunities.