China’s expanding influence: Mauritius becomes third RMB Clearing Hub in Africa

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By Dr Hans Seesaghur

China has been Africa’s largest trading partner for the past 15 years, with bilateral trade reaching a record high of $283 billion last year. The deepening cooperation and growing trade between African nations and China have paved the way for increased use of the renminbi (RMB), the official currency of the People’s Republic of China, on the African continent. Additionally, the emergence of the RMB as a significant player in the global financial landscape underscores China’s ascendance in the world economic structure.

Mauritius’s payment infrastructure, its DTAAs, and the MCFTA positions it as an optimal hub for developing into a major RMB clearing house for regional trade. Pic – China Daily

As part of Mauritius’s enhanced financial services cooperation under the Mauritius-China Free Trade Agreement (MCFTA), the People’s Bank of China (PBOC) is set to appoint the Bank of Mauritius (BoM) as the RMB clearing centre for Mauritius once an agreement is finalized.

During the “Mauritius-China Economic Cooperation Forum” held on December 7, 2022, in Mauritius, Finance Minister Hon Renganaden Padayachy reiterated his commitment to launching a RMB clearing centre, as previously announced in the Mauritian National Budget for 2022-2023 in June 2022. Subsequently, on December 16, 2022, Mauritius became the third RMB clearing centre on the African continent, during a ceremony held at the Bank of Mauritius.

On September 4, 2024, on the sidelines of the 2024 Summit of the Forum on China-Africa Cooperation (FOCAC), the Bank of Mauritius and the People’s Bank of China signed a bilateral currency swap agreement. According to the PBOC statement, the agreement is valued at 2 billion yuan (approximately 281.1 million U.S. dollars) or 13 billion Mauritian rupees. The agreement is valid for three years and can be renewed upon mutual consent.

Bilateral currency swap agreements enable direct currency exchanges between nations, bypassing the need for a common reserve currency like the US dollar. Over the past 15 years, China has made significant progress in currency swaps with African nations, signing agreements with countries such as South Africa, Morocco, Egypt, and Nigeria. South Africa, Nigeria, and Kenya have adopted the RMB as a reserve currency. Additionally, in 2017, the Bank of China’s Johannesburg branch issued the first offshore RMB-denominated bond in Africa. As of September 2023, China had established swap agreements with 40 central banks or monetary authorities, with a total value exceeding 4 trillion RMB.

Given that the Bank of Mauritius is the settlement bank for the COMESA Regional Payment and Settlement System (REPSS), and the RMB is now among the top five most-used currencies globally, today’s currency swap agreement is highly significant. It will elevate Mauritius into the top financial jurisdictions maintaining a special economic relationship with China. This initiative will further strengthen financial cooperation between Mauritius and China, expand the use of both currencies, and elevate bilateral trade and investment to new heights.

Moreover, Mauritius, a key player in important regional payment systems in Africa such as SADC’s RTGS (regional cross-border real-time gross settlement) and the Pan-African Payment and Settlement System (PAPSS), will enhance its trade and investment base in the region. Mauritius also has double taxation avoidance agreements with 16 African countries or regional groupings and a well-regarded legal and regulatory framework. Thus, the combination of Mauritius’s payment infrastructure, its DTAAs, and the MCFTA positions it as an optimal hub for developing into a major RMB clearing house for regional trade.

With the African Continental Free Trade Area (AfCFTA) in effect, the operation of the Mauritius RMB Clearing Centre is expected to further boost bilateral trade between Africa and China, facilitating international settlements without the need for an intermediary currency.

From a trade perspective, following the ratification of the MCFTA, Mauritius’ exports to China surged by 148 percent in 2021. The RMB Clearing Centre and the recent currency swap agreement will enable Mauritian exporters and importers to transact directly with Chinese suppliers in RMB, streamlining payments and reducing transaction costs. This direct trading in RMB is likely to enhance trade effectiveness and strengthen trade relations in 2024 and beyond.

From an investment perspective, recent statistics from the Ministry of Commerce of China indicate that China’s direct investment in Mauritius amounted to approximately $238.56 million in 2021, with a stock of around $1.059 billion. Since the ratification of the MCFTA, the Bank of China (Mauritius) Co. Ltd. has completed international settlement transactions worth $2.504 billion as of January 1, 2021. According to Chinese statistics, from January to October 2022, the Bank of China (Mauritius) Co., Ltd. had a transaction volume of approximately $2.491 billion, a 22.47 percent increase year-on-year. During the same period, the cross-border RMB payment and clearing business volume reached 779 million yuan, marking a new high for RMB transactions in Mauritius.

This strategic manoeuver will further establish Mauritius as an international financial centre in the African region. Combined with its DTAAs, payment infrastructure, MCFTA, and the new RMB Settlement Centre, the currency swap mechanism will bring tangible benefits to businesses, investors, citizens, and the government. It will significantly reduce transaction costs and currency exchange risks, enhancing the efficiency of international trade and investment, and supporting economic growth and development for both Mauritian and Chinese stakeholders.

Dr Hans Seesaghur, an International Affairs Specialist and Sinologist, formerly served as the Chief Representative of the EDB in China at its Shanghai office. He also held the position of Economic and Commercial Counsellor at the Embassy of Mauritius in Beijing.

Mauritius Times Online Friday 6 September 2024