Africa, China, and the Future of Global Finance Beyond the Dollar

Written by Ramsha Waheed

For decades, the US has dominated global trade and finance through SWIFT (Society for Worldwide Interbank Financial Telecommunication). However, African countries have a growing momentum towards diversifying their trade settlements to reduce their dependence on the dollar. This shift is motivated by the consideration that relying on dollars creates delays, costs, and even vulnerability to sanctions. In contrast, China’s Cross-Border Interbank Payment System (CIPS) offers a yuan-based alternative due to its speed, lower cost and ability to bypass US sanctions. To benefit from the viable alternative effectively, more than 50 African countries have shown intent to improve their trade ties with China through the Forum on China–Africa Cooperation (FOCAC 2024 outcomes). Geopolitically, this shift supports multilateral global governance in the face of US-led structures. Politically, African countries engaging with China for trade demonstrate continental consensus, making China a strategic partner.

The Dollar Dilemma in Africa

SWIFT is dominant, as over 11,000 institutions and 200+ countries use it for cross-border payments. The European Union mainly regulates their headquarters in Belgium. Dollar payments are cleared in New York banks, so the US also holds decisive control over global transactions. It bears relatively high transaction costs for Africa because its trade settlements often go through double currency conversion. For instance, the local currency must be converted into USD and then into the target currency, adding bank fees with each conversion. The process causes countries to face delays in settlement and currency fluctuations. These hurdles are a significant reason behind small to medium enterprises (SMEs) reluctance to engage in cross-border trade.

African economies face the major challenge of maintaining sufficient USD reserves for imports. In Nigeria, Ghana, and Kenya, dollar shortages often disrupt fuel, food, and medicine imports. Currencies such as the Naira, Cedi, and Shilling face inflation when dollar demand rises. Many a time, the West and the US use dollar access as a sanctions tool and exclude certain economies, such as Iran, Venezuela, and Zimbabwe. In 2022, the US and EU’s freezing of $300 billion of Russia’s foreign reserves shocked the Global South, underscoring the example of over-reserve dependence. Similar measures might also be taken against African countries if any disagreement arises.

Practically, currency dependence often translates into political reliance. For instance, dollar dominance in African countries ties them to US monetary policy, restricting them from undertaking an independent trade strategy. Other regions, such as ASEAN and Latin America, have also been experimenting with local currency settlements and regional frameworks for payment. Likewise, Africa must diversify by strengthening yuan settlements via CIPS; otherwise, it risks being left out.

CIPS: A Yuan-Based Alternative to the Dollar

People’s Bank of China (PBoC) launched CIPS (Cross-Border Interbank Payment System) in 2015 to internationalise the yuan and support global trade outside the USD framework. It combines a payment and messaging system to help reduce reliance on SWIFT and provide China with autonomy in international finance, freeing China from sanctions.

Official figures show that CIPS connects over 4,900 financial institutions in 187 countries. Daily, over ¥175 trillion ($24.4 trillion) worth of transactions occur, integrating key global banks (e.g., HSBC, Standard Chartered) to handle Yuan-dominated settlements.

Unlike SWIFT, direct Yuan clearing doesn’t go through “double conversion.” This is why it can save transaction costs and time and provide greater transparency for participating banks. Participating countries would not be exposed to pressure from Western sanctions due to the West’s lower regulatory authority over CIPS.

For Africa, China is its largest bilateral trading partner. In 2023, their trade surpassed $282 billion(UNCTAD). For China, Africa is itssecond-largest overseas investment destination,mainly in infrastructure, mining, and energy. Central banks in Nigeria, South Africa, and Egypt increasingly diversify their reserves by holding yuan. Since African nations face dollar shortages, yuan settlements can be an immediate and practical solution to liquidity constraints. Reflecting this trend, FOCAC 2024 outcomes focused on financial settlements, ultimately leading to reduced dependency on the dollar.

From the geopolitical perspective, CIPS provides the world with its financial statecraft that offers a multipolar alternative to US-centric finance. Africa’s increased trade close to CIPS will help China to strengthen its influence in South-South cooperation. The major shift in global financial architecture toward de-dollarisation is an excellent challenge to US-dominated global trade governance.

Africa’s Path to Financial Independence

Countries, such as Egypt, Nigeria, South Africa, and Angola, are adopting CIPS in various capacities. In 2023, the Egyptian Central Bank signed a yuan-settlement agreement with the Bank of China. Signing an agreement was part of broader BRICS-linked de-dollarisation moves. Nigeria also made a currency swap deal with China worth 15bn yuan to facilitate direct trade. The agreement has reduced Nigeria’s need for USD in Oil and agricultural exports. In South Africa, one of the founding members of BRICS, Standard Bank enabled direct Yuan payments with China. Finally, Angola has diversified its investment from Oil to 100,000 hectares of soybeans, corn, and seeds in Chinese agriculture.

Internationally, Africa is shifting from a rule-taker to an agenda-setter in global financial reforms. Its adoption of CIPS shows African countries’ desire for economic independence and support for multipolar governance. The continent’s leading economies, such as South Africa, Egypt, Nigeria, and Angola, are at the forefront of this shift. Ultimately, it now depends on Africa how it balances between East and West to determine its economic sovereignty in the next decade.