THE use of the Chinese Yuan maybe one way of insulating Zambia’s economy, says Private Sector Development Association (PSDA) chairperson Yusuf Dodia.
Mr Dodia said Zambian importers should, therefore, aggressively consider trading directly with the Chinese Yuan since China was Zambia’s biggest trade partner to avoid global shocks which might arise once the United States tightened its policy rate.
He explained that an improvement in the use of the Chinese Yuan maybe one way of insulating Zambia’s economy from any changes of the dollar market that may take place in the US.
“Zambia currently is trading far east much more aggressively than it is trading with Western countries and the dollar-based economies.
“Currently, the Bank of China based in Zambia is offering mechanisms that we can trade with China, direct conversion from Kwacha to Yuan not involving the dollar, that mechanism can be useful,” he said.
Mr Dodia said in an interview that the entire world was likely to be affected once the US increased its Federal reserve’s interest rates, hence the need for urgent mechanisms to protect Zambian importers.
“The challenge we have is that the dollar has become the most widely trading currency and therefore, when the reserves are increased, it means it affects the entire planet but there are mechanisms that try to delink the challenges that maybe happening.
“I think after the 2008 crisis that the American economy experienced, countries like China tried to put up alternative mechanisms and for Zambia, I think these are some of the mechanisms that may protect our economy from the shocks that generate from the changes in the US reserves,” he said.
He also said it was important for the private sector to consider trading with the Euro as well.
Mr Dodia, however, said unlike measures taken by other countries to build strong foreign reserves, Zambia was not in a position to take such a step as the reserves were not enough.
“Unlike some stronger economies that have built reserves over the years, Zambia is still operating on a deficit budget where we have been unable to raise resources to finance our own budget 100 percent and this has an effect on our ability to build foreign reserves,’’ he said.
The US is this year expected to tighten its policy rate with between 0.25 to 0.5 percent to improve its economy.