China’s banking infrastructure and the institutional mechanisms supporting its overseas expansion are robust and centralized, facilitating the financing of mega-projects, particularly in Africa through the Belt and Road Initiative. However, the adoption of this system on the African continent faces complex structural and economic obstacles.
- Here is a detailed and tabulated analysis outlining the infrastructure, institutional channels, and obstacles to adoption:
- China’s Banking Infrastructure and Institutional Channels
China relies on a state-led banking system guided by government policies, with the following distribution of roles:
| Category | Main Institutions | Primary Role |
| Policy Banks | China Development Bank (CDB) Export-Import Bank of China (Exim Bank) | Financing major infrastructure projects (energy, roads, ports) based on strategic government decisions |
| State-owned commercial banks | • Industrial and Commercial Bank of China (ICBC) • Bank of China | Providing trade and banking facilities to Chinese and African companies, and opening branches in African capitals |
| Payment and settlement systems | • The cross-border ring payment system in yuan (CIPS) | A Chinese alternative to the SWIFT system that aims to internationalize the yuan and facilitate direct financial transactions without relying on the dollar |
| Strategic Funds | • China-Africa Development Fund (CADFund) | Directly invests in the shares of companies and development and industrial projects in Africa |
– Obstacles to Adopting Chinese Infrastructure and Banking Systems in Africa
Attempts to integrate or adopt Chinese banking systems, such as the CIPS system or full reliance on the yuan, in Africa face several key challenges, divided into three main areas:
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– First: Economic and Financial Obstacles
1) Historical Linkage to the Dollar and Euro: Most African countries’ foreign exchange reserves and trade transactions remain denominated in US dollars, making a shift to the yuan costly and complex.
2) Sovereign Debt Crises: Several African countries suffer from high levels of debt owed to China, pushing them towards restructuring rather than expanding the adoption of new banking mechanisms.
3) Lack of Yuan Liquidity: African financial markets lack sufficient liquidity in the Chinese currency to conduct daily transactions smoothly.
– Second: Regulatory and Technological Obstacles
1) Weak Legislative Environment: Banking laws in Africa vary significantly from country to country and do not easily comply with the strict standards or restrictions imposed by China on capital flows.
2) Digital Infrastructure Lag: Modern Chinese settlement systems require a robust cybersecurity and communications infrastructure, which is not equally available across the continent.
– Third: Geopolitical and Strategic Obstacles
1) Western Pressure: International institutions, such as the IMF and World Bank, and Western partners urge African countries to be wary of over-reliance on the Chinese financial system.
2) Transparency and Governance: The terms of Chinese loans, sometimes described as secret, raise concerns among African political elites and civil society regarding national sovereignty.
1) Cross-border banking channels and CIPS operationalization: How is Beijing deploying structural financial partnerships, specifically the standard bank’s integration of China’s cross-border interbank payment system (CIPS) to establish direct clearing channels, reduce third currency exchange costs, and facilitate day-to-day commercial RMB transactions across the continent?
Beijing is expanding its financial influence across the African continent by integrating Standard Bank—Africa’s largest bank by assets—into the Cross-Border Interbank Payment System (CIPS). This strategic partnership aims to displace the U.S. dollar as an intermediary currency in intra-regional trade, shifting toward direct reliance on the Chinese yuan (RMB).
– China is deploying these structural financial partnerships through precise operational mechanisms, including the following:
- Establishing direct clearing channels and eliminating international intermediaries, through:
A) Direct Linkage: By late 2025, Standard Bank became the first African bank to connect directly to China’s CIPS.
B) Continental Clearing Bank: A more significant development followed in mid-2026, when the People’s Bank of China (PBOC) authorized Standard Bank—in collaboration with the Industrial and Commercial Bank of China (ICBC), which holds a 20% stake in Standard Bank—to operate as the RMB Clearing Bank for Africa.
C) Geographic Coverage: This joint entity possesses the operational authority to settle and clear yuan-denominated transactions directly across 19 African countries, bypassing the need for correspondent banks in New York or London.
- Reducing foreign exchange costs and safeguarding liquidity through:
A) Eliminating double conversion: Previously, an African importer would have to convert their local currency, such as the Ghanaian cedi or the Kenyan shilling, into U.S. dollars, after which the Chinese supplier would then convert those dollars into yuan. This process results in double conversion costs and a waste of time.
B) Savings of up to 4%: Through direct CIPS (Cross-Border Interbank Payment System) channels, debits are made in the local currency, while settlement occurs immediately in Chinese Yuan (CNY). This reduces foreign exchange conversion costs by as much as 4%.
C) Hedging against USD volatility: This mechanism shields African merchants from the risks of exchange rate fluctuations and the severe shortages of US dollar liquidity often seen in emerging markets.
- Facilitating and accelerating daily trade transactions
A) Same-day settlement: The settlement period for international trade transactions has been reduced from several days to just 24 hours (or near real-time), providing businesses with significant flexibility in managing their working capital.
B) Expanded infrastructure: Standard Bank has progressively rolled out this service across its subsidiaries (operating under the name Stanbic) in key trade corridors, including Namibia, Ghana, Kenya, Tanzania, and Angola. The network has grown to include more than 17 indirect participants, local African banks connected to the system via Standard Bank.
C) Growth in financial flows: This integration reflects accelerating commercial demand; by the second half of 2026, Standard Bank had processed transactions exceeding 8 billion CNY (approximately 1.1 billion USD), marking an 80% year-on-year surge in transaction volume.
– The Dynamics of Conflict and Integration Between the Two Systems in Africa: How China’s CIPS Operates and Its Comparison with SWIFT
At present, CIPS cannot be considered a complete replacement that would render SWIFT obsolete in Africa. Instead, the infrastructure operates along two parallel tracks:
1. A Hybrid Relationship (Intersecting Interests)
In its early stages, CIPS relied on the SWIFT messaging network to transmit instructions to banks that lacked direct communication links with China. Even today, African banks continue to use SWIFT messaging to notify their Chinese correspondent banks of their intent to settle yuan-denominated payments via CIPS.
2. Reducing Costs and Eliminating Double Intermediation
Prior to CIPS, an African merchant purchasing goods from China had to:
Convert their local currency, such as the Nigerian naira, into US dollars via the SWIFT network and American correspondent banks.
The Chinese exporter would then convert those dollars into yuan.
This intermediation increases transaction fees and exposes trade to exchange-rate risks, as well as the challenges posed by US dollar shortages in Africa.
With CIPS, funds can be converted directly from the local currency into yuan, without the transaction needing to pass through New York or utilize the American clearing system (CHIPS).
3. Rapid Expansion in Africa
The African continent is undergoing a strategic shift toward the Chinese system. Major African banking groups, such as Ecobank, which operates in 34 African countries, have signed formal agreements to join CIPS. This integration enables thousands of African businesses to settle their trade transactions (exports and imports) with China on an immediate basis and directly, without any Western intermediary.
In summary, Africa’s adoption of the CIPS system is not a political rejection of SWIFT but rather an essential economic necessity. The Chinese system ensures secure and rapid trade flows with the continent’s primary trading partner—Beijing—and protects African monetary reserves from the persistent crises caused by dollar shortages.
2) Reverse diversification and commercial resistance: what direct steps is China taking to encourage African central banks to hold the yuan in their foreign reserves, and what critical bottlenecks—including capital controls, convertibility limitations, and enduring commercial preference for the dollar—constrain widespread adoption?
The international financial arena is witnessing vigorous efforts by Beijing to enhance the status of its currency, as China takes direct strategic steps to encourage African central banks to include the yuan (RMB) in their monetary reserves. However, these efforts are encountering crucial structural obstacles that limit its dominance. China is taking extensive steps to persuade African central banks to include the yuan (renminbi) in their foreign exchange reserves, leveraging its massive commercial influence to establish a parallel financial system. However, these efforts face critical structural resistance that prevents the yuan from displacing the dollar as the primary reserve currency on the continent.
– China is working through multiple diplomatic and financial channels to integrate the yuan into African banking systems by:
– First: Direct measures taken by China
Beijing is employing concrete financial and structural channels to push African central banks and institutions toward adopting the yuan through:
1) Expanding payment infrastructure (CIPS): China is actively working to connect African banks to the Cross-Border Interbank Payment System (CIPS), an alternative to the Western SWIFT system. Major institutions, including the African Export-Import Bank (Afreximbank), Standard Bank, and the Ecobank Group, have joined, linking the continent directly to Chinese financial systems.
2) Establishing regional clearing networks: The Central Bank of China has tasked a partnership between the Industrial and Commercial Bank of China (ICBC) and Standard Bank with launching a renminbi clearing bank for Africa. Covering 19 African nations, this initiative allows transactions to be settled directly in yuan, bypassing the need for a dollar-based intermediary.
3) Converting debt burdens into yuan: China has leveraged debt crises to offer restructuring options and relief to importers and struggling nations, such as Kenya and Ethiopia, by allowing Chinese loans to be repaid in yuan rather than dollars. This effectively compels central banks to hold the currency to facilitate these payments.
4) Bilateral Currency Swaps: The People’s Bank of China (PBOC) has signed currency swap agreements with prominent African central banks. The Central Bank of China has signed currency swap agreements—worth billions of yuan—with key nations, such as Egypt, South Africa, and Nigeria, to provide emergency yuan liquidity and support monetary stability. These agreements allow local banks to directly access yuan liquidity for trade settlement without needing US dollars.
5) Panda Bonds and Credit Facilities: China has encouraged countries like Egypt to issue Panda bonds—bonds denominated in yuan—within Chinese markets. This has been accompanied by the provision of an interbank financing facility exceeding 10 billion yuan, aimed at ensuring ample liquidity for African institutions.
6) Developing Alternative Settlement Systems: Expanding the use of China’s cross-border interbank payments system (CIPS) as an alternative to SWIFT and facilitating its integration with African banks to reduce the cost and time of yuan transactions.
7) Yuan-Denominated Loans and Aid: Beijing is providing an increasing portion of its infrastructure loans and investments through the China Development Bank and the Export-Import Bank of China in Chinese yuan, requiring borrowing countries to hold yuan for debt repayment.
8) Establishing Yuan Clearing Centers: Setting up official yuan clearing centers on the continent, such as in Zambia and South Africa, to facilitate direct financial transactions between local currencies and the yuan.
– Second: Critical Obstacles Limiting Widespread Adoption
Despite these efforts, the process of internationalizing the yuan in African reserves faces fundamental obstacles that make abandoning the dollar extremely difficult. Despite these facilities, the yuan faces structural constraints that make African central banks cautious about adopting it as a primary reserve currency:
| The obstacle | The nature of the challenge and its impact on African central banks |
| Strict capital controls | Beijing imposes strict limits on capital outflows through its financial account. This makes the yuan less attractive as a reserve currency, as central banks need freely convertible currencies that can be readily liquidated to counter sudden economic shocks |
| Partial convertibility limitations | The yuan is only partially convertible (in certain trade transactions and offshore markets). The inflexibility of Chinese financial markets and their lack of sophisticated hedging and investment tools limit banks’ willingness to store their surpluses there |
| The persistent trade preference for the dollar | Means that over 60% of Africa’s external debt and most of its vital imports (outside of China) are still denominated in US dollars. Central banks remain structurally obligated to hold dollars to cover their extensive international liabilities, with the yuan accounting for only about 2% of global payments |
| Reciprocity of financial dependence | Some African monetary authorities fear that a full transition to the Chinese payments and reserves system will lead to replacing Western dependence with complete Eastern dependence, especially since China currently has huge trade surpluses with Africa and is taking back more yuan from the continent than it is investing in new countries |
| The depth of Chinese financial markets | Chinese yuan-denominated bond markets (available to foreigners) lack the depth and flexibility of the US Treasury bond market, reducing attractive investment options for central banks |
In summary, China is gradually succeeding in turning the yuan into a bilateral trade settlement currency (to reduce the cost of exchange and import and export transactions with it), but its transformation into a primary reserve currency for African central banks will remain limited unless Beijing fully liberalizes its capital account and internationalizes its currency without restrictions.
This touches upon the fundamental structural obstacle preventing the Chinese yuan (RMB) from competing with the US dollar or the euro as a global reserve currency, despite its growing success as a currency for trade settlement.
- This argument can be broken down into two main points:
- First: Success in Trade Settlement
China has been successful in establishing the yuan for its bilateral transactions – particularly with African and other developing nations – for several reasons:
- Reducing currency risk: It allows African partner nations to avoid double exchange rate risk (converting from a local currency to the US dollar, and then to the yuan).
- Alleviating dollar shortages: Many African central banks face persistent liquidity shortages in US dollars, making settlement in yuan a vital lifeline for maintaining the flow of essential imports from China.
- Trade leverage: As the continent’s largest trading partner, it is natural for China to push for the use of its own currency through systems such as CIPS (the Cross-Border Interbank Payment System).
- Second: The Reserve Currency Dilemma and the Capital Account
For a currency to function as a reserve currency, central banks must be willing to hold it as a long-term safe haven and a store of value. Here, China encounters the policy trilemma, as Beijing refuses to fully liberalize its capital account for the following reasons:
- Capital controls: China imposes strict restrictions on the inflow and outflow of capital to shield its domestic economy from external shocks and inflationary pressures. This means that an African central bank holding substantial reserves in yuan might find itself unable to liquidate or transfer those funds with complete freedom during times of crisis.
- The absence of deep, open financial markets: Reserve currencies require large, liquid government bond markets that are fully accessible to foreign investors without conditions, such as (the U.S. bond market). China’s bond markets remain subject to strict regulatory oversight.
- Exchange rate control: Beijing prefers to maintain a managed exchange rate for the yuan to support the competitiveness of its exports, whereas a global reserve currency requires full flexibility, determined by the forces of a free market.
- Examples of African countries that have already begun incorporating the yuan into their reserves (such as Zimbabwe or Nigeria):
Several African nations have started integrating the Chinese yuan (renminbi) into their foreign exchange reserves, or using it as a currency for settling transactions, tax payments, and debt obligations. This move is aimed at diversifying their reserves and reducing reliance on the U.S. dollar.
- Notable examples, include:
- Angola: The Central Bank of Angola has officially authorized commercial banks to use the Chinese yuan to meet mandatory foreign currency reserve requirements, placing it alongside the U.S. dollar, the euro, and the South African rand.
- Zambia: The Central Bank of Zambia has officially adopted the yuan for the payment of mining taxes and royalties by Chinese mining companies, allowing the currency to flow directly into Zambia’s national reserves.
- Rwanda: The National Bank of Rwanda has included the Chinese yuan in its foreign exchange reserves to facilitate growing trade transactions with Beijing.
- Nigeria: Nigeria has signed and renewed currency swap agreements – valued at 15 billion yuan – to enable direct currency exchange and facilitate the use of the yuan in financial transactions.
- Kenya and Ethiopia: Kenya has incorporated the yuan into a portion of its reserves (at levels reaching up to 5%). Both countries have recently moved toward debt-swap arrangements and the use of the yuan for transactions to alleviate pressure on their U.S. dollar reserves.
- South Africa: South Africa holds a portion of its reserves in yuan and maintains currency swap agreements to enhance trade liquidity.
- Expected Scenarios for Chinese Monetary Policy Regarding Full Internationalization in the Coming Years
The strategic plans of the People’s Bank of China (PBOC) for the 2026–2030 period indicate that Beijing is not pursuing a path of sudden, full internationalization for its currency (the Yuan/Renminbi). Instead, it is adopting a gradual, controlled approach to build a financial system that parallels the Western-led system, thereby reducing reliance on the U.S. dollar.
- Three primary scenarios will shape the trajectory of Chinese monetary policy regarding currency internationalization over the coming years, as follows:
- The first scenario: The Baseline and Most Likely Scenario: Managed Internationalization
This scenario focuses on developing the infrastructure for cross-border payments and investments without fully lifting capital account restrictions, thereby avoiding abrupt monetary shocks.
- Monetary Policy Mechanisms:
- Enhancing the Cross-Border Interbank Payment System (CIPS): Expanding the integration of international banks and financial institutions into China’s payment network as an alternative to the SWIFT system.
- Expanding Offshore and Onshore Bond Markets: Increasing the issuance of Panda bonds (Yuan-denominated bonds for foreign investors within China) and Dim Sum bonds (Yuan-denominated bonds issued outside China), while building a comprehensive financial ecosystem that includes derivatives and hedging instruments.
- Currency Swap Agreements: Strengthening and broadening the network for cross-border clearing through local currency swap arrangements with partner central banks, particularly those within the BRICS bloc and the Belt and Road Initiative.
- Objective: To transform the yuan into a major international financing and investment currency, while maintaining exchange rate stability and capital controls to shield the domestic economy from speculation.
- The Second scenario: The Forced Acceleration Scenario: Internationalization Amidst Geopolitical Tensions
Should trade wars escalate and Western sanctions against Chinese entities expand, Beijing might be compelled to accelerate the internationalization of the yuan as a defensive tool.
- Monetary Policy Mechanisms:
- Mandating Yuan-Denominated Energy Settlements: Compelling or incentivizing nations that export oil, gas, and raw materials to settle transactions in yuan rather than in petrodollars.
- Upgrading the Digital Yuan (e-CNY) System: Recent enhancements to the digital yuan – such as the integration of smart contracts and a shift toward a digital cash-deposit framework – signal Beijing’s intent to bypass traditional correspondent banking and expedite real-time, sovereign cross-border settlements.
- Objective: To construct a resilient financial safety net that is entirely independent of U.S.-led financial systems.
- The Third scenario: The Slowdown and Caution Scenario: Prioritizing Domestic Stabilization
China faces structural challenges, including a slowdown in GDP growth and crises within the real estate sector. Should these crises deepen, monetary policy will prioritize domestic stability above all else, at the expense of internationalization.
- Monetary Policy Mechanisms:
- Tightening Capital Controls: Restricting capital outflows to prevent a depreciation of the yuan and to safeguard foreign exchange reserves.
- Maintaining interest rates and targeted easing: Focusing on reforming domestic loan pricing frameworks, such as (adopting the overnight interest rate as a new benchmark) to lower borrowing costs within China and stimulate consumption.
- Objective: To prevent capital flight and protect domestic banks, which entails a temporary freeze on plans for financial liberalization.
- A brief comparison of the key features of China’s upcoming monetary policy
| Financial Axis | Current Situation and Future Direction (2026 – 2030) |
| The exchange rate | Managed and controlled; Beijing rejects the option of a full float and affirms that it will not resort to competitive currency devaluation |
| Capital account | Restrictions are partial, Facilitating transactions for foreign companies and institutions within the local exchange market while preventing the random outflow of liquidity |
| Digital currency | Expands the experience using e-CNY for cross-border wholesale transactions and trade finance |
Here, it is worth noting the latest developments as of October 19, 2026, when Pan Gongsheng, Governor of the Central Bank of China, announced that the People’s Bank of China (PBOC) would respond to market needs by strengthening high-quality monetary policy tools, while continuing to support the internationalization of the yuan. He emphasized that authorities would facilitate the ability of foreign financial institutions to conduct yuan-denominated transactions within the domestic foreign exchange market, a move aimed at expanding the global use of the Chinese currency. He also unveiled a package of additional measures, including broadening the range of institutions eligible to access standing lending facilities, as well as enhancing the connectivity and integration of bond markets. Furthermore, he explained that the central bank would launch a liquidity support tool to address large-scale redemption requests that non-bank financial institutions might face.
These steps come at a time when China is grappling with economic challenges, such as slowing growth and weak domestic demand. Monetary authorities are seeking to strike a balance between supporting economic activity and maintaining the stability of the financial system, all while bolstering the status of the yuan as a currency for cross-border trade and investment.
