From Dollars to Yuan: Africa’s New Debt Strategy Amid Rising U.S. Rates

African nations have quietly begun restructuring their China debts in yuan, aiming to cut costs and dampen currency risk. In October 2025, Kenya’s finance minister announced that three railway loans – originally borrowed in U.S. dollars – had been converted into Chinese yuan, immediately trimming the country’s interest burden by about $215 million per year. Shortly afterward, Ethiopia’s central bank revealed it was in talks with China to swap a portion of its roughly $5.38 billion owed into yuan. These moves are not isolated finance quirks, but part of a growing trend. Many analysts note that as U.S. interest rates rise, countries with dollar debts face heavier repayments, making yuan-denominated loans (with typically lower rates) an attractive hedge.

This shift reflects a broader calculus: for many African borrowers, paying China in yuan now makes practical and financial sense. To see why, consider several key factors:

Dollar Loans Dominate African Debt. Most African governments issue debt in foreign currencies – above all the U.S. dollar. For example, the Mo Ibrahim Foundation estimates over 70% of Africa’s external public debt is USD-denominated. Because countries earn revenue in local currencies (Kenyan shillings, Ethiopian birr, etc.), a strengthening dollar can dramatically inflate debt servicing costs in local terms. If the shilling or birr falls, a fixed dollar payment suddenly buys much more of the local currency. As an Atlantic Council analysis explains, “governments rely on a costlier and more volatile source of financing” with dollar debt. In short, soaring U.S. rates → stronger dollar → a heavier burden on African borrowers.
Yuan Loans Often Cheaper and Trade-Linked. By contrast, Chinese loans in yuan often carry lower interest rates and can be directly tied to trade with China. For instance, China’s current one-year prime lending rate is around 3%, versus roughly 7–7.5% for comparable U.S. loans. Swapping a loan’s denomination from USD to RMB can nearly halve annual interest costs. Moreover, China is Africa’s largest trading partner, so countries can earn yuan through exports to China or Chinese-funded projects. Repaying debts directly in yuan then matches those inflows – no extra currency conversion needed. As one African economic institute noted, many nations with Chinese loans find it “only [makes] economic sense to repay in renminbi (Chinese yuan)” when the financing came from China. In practice, paying China in yuan aligns debt service with trade patterns, smoothing budget planning.
Fed Policy and Currency Risk. A big motivation is U.S. Federal Reserve policy. When the Fed raises its benchmark rates (as it did aggressively in 2022–2024), the dollar typically strengthens against other currencies. All else equal, that means each dollar payment costs more in local currency. By shifting loans to yuan, borrowers insulate themselves from U.S. rate swings. A recent Reuters analysis observed that “increasingly high borrowing cost of the dollar… (have led) many debtors [to turn] to the RMB for financing or refinancing”. In other words, Chinese lenders are effectively offering an escape hatch: lock in today’s (lower) RMB rates and sidestep future dollar spikes. This is exactly what Kenya and Ethiopia are doing. Kenya’s finance ministry noted that the converted yuan loans carry lower interest than the original dollar rates. Ethiopia’s central bank governor similarly said swapping currency “makes sense” given growing trade and investment ties with China.
China’s Currency Strategy. These conversions also dovetail with China’s broader goal of internationalizing its currency. Beijing has actively encouraged yuan use in Belt-and-Road loans. At the September 2024 China-Africa summit, President Xi Jinping pledged roughly ¥360 billion (about $51 billion) in new support for African nations – explicitly announcing that much of this funding would be extended in yuan. As the Reuters report put it, this was “an apparent push to further internationalise the Chinese yuan”. In practical terms, as more African projects are financed in yuan, governments find it natural to repay in the same currency. The result is a new cycle of trade and financing centered on China’s currency. (On a global scale, the yuan’s share of cross-border payments has been growing – hitting around 3.7% by late 2023, up from under 2% a year earlier – albeit still far behind the dollar’s 46%+ share.)

China’s leaders have been explicit about this strategy. For example, at the 2024 FOCAC (Forum on China–Africa Cooperation) summit in Beijing, Xi pledged tens of billions more to Africa in yuan, citing the need to help modernise globally. He told delegates that in previous summits the funding was in dollars, but **“this time, the financial assistance would be in yuan, in an apparent push to further internationalise the Chinese yuan”**. This policy stroke has immediate local impact:

Chinese yuan banknotes and coins (illustrative). African countries earning yuan from exports or loans to Chinese projects can now pay back their debt directly in that currency. This avoids the extra cost of converting shillings or dollars into yuan, and ties repayments to China-linked earnings.

By aligning debt with trade, countries hedge against U.S. Fed moves. As one African official put it: “China is a very important partner for us now… So it really makes sense to arrange some currency swap… this is something in the making — we’ve requested officially and then [are] working on it”.

Why the Dollar Hurts (and the Yuan Helps)

The core economics can be illustrated by a simple comparison:

Dollar-denominated loan: Suppose Kenya borrows $1 billion at 5% interest (annual cost $50 million). Initially, imagine 1 USD = 100 Kenyan shillings (KES), so the interest is 5 billion KES. If the U.S. Federal Reserve then tightens policy and the dollar strengthens to 1 USD = 120 KES, the same $50 million interest now costs 6 billion KES – a 20% jump in local repayment burden purely due to currency moves.
Yuan-denominated loan: Now imagine Kenya instead borrows an equivalent amount (say ¥7 billion at 5%). If Kenya can earn yuan via exports or aid, it repays in yuan directly. If the dollar subsequently rises, it doesn’t impact the yuan loan. The cost remains 350 million yuan per year, regardless of USD-KES swings.

In short, with a yuan loan, Kenya’s debt cost is tied to its trade flows with China and the stability of the yuan (and Chinese rates), not to the volatile dollar-shilling exchange rate.

This example shows the appeal: high U.S. rates and a strong dollar amplify shilling payments on USD debt, whereas yuan loans keep costs more stable. It’s no coincidence that Zambia, another African borrower, announced a similar plan in 2019. Zambia’s finance minister said the country intended “to swap the dollar into yuan so that we can try to somewhat mitigate exposure to the dollar”.

Implications for Global Currency Dynamics

This isn’t only about individual budgets; it hints at a slow shift in international finance. Every loan moved from dollars into yuan means less global demand for dollars in that transaction. Over time, if many countries adopt this strategy, it could chip away at the dollar’s exclusive dominance. Analysts point out that Fed rate hikes already have “helped Beijing increase the yuan’s acceptability with some countries”. As Chinese policy banks increasingly sign yuan-denominated contracts abroad (for example, Malaysia, Saudi Arabia, Peru all saw RMB deals during the 2023 Belt-and-Road forum), the groundwork is laid for a more multipolar currency system.

That said, the dollar’s lead remains huge – it still accounts for roughly half of global payments – and the yuan faces hurdles (limited oil-trade invoicing, capital controls, foreign investor wariness). But in regions like Africa and Asia, the pull of direct China trade is strong. As one economist noted, amid global volatility, infrastructure deals via China offer a “good opportunity to expand the RMB’s international clout”.

Why This Matters

African governments are essentially saying, “We prefer to pay China in yuan.” By converting their Chinese loans to yuan, they hedge against erratic U.S. policy and usually get lower interest rates, while linking debt to their largest trading partner. This strategy provides immediate fiscal relief and predictability. Over time, if more countries follow, it will gradually weaken the dollar’s dominance in trade and finance. In an increasingly multipolar world economy, these shifts – driven by interest-rate cycles and big-power trade ties – could reshape the global currency landscape in subtle but significant ways.

Does the U.S. Lose If Africa Trades in Yuan?

When African countries such as Kenya and Ethiopia switch from dollar-denominated debt or dollar-settled trade to yuan (Chinese renminbi, RMB) payments, what are the implications for the United States? The answer: yes — there are meaningful losses, though they are gradual and partial rather than sudden or total. The impact can be grouped into four key areas:

1. Reduced Global Demand for the U.S. Dollar

The long-standing global dominance of the U.S. dollar has rested on its extensive use in trade, finance and reserves. For example:

The dollar currently accounts for around 54% of global trade invoices.
It is involved in roughly 88% of foreign-exchange transactions.
End-2024 data show the U.S. dollar still held about 58% of global foreign-exchange reserves.
The dollar remains the default currency for cross-border transactions, debt issuance, and trade settlement.

When African nations begin using yuan for trade with China or servicing Chinese-origin loans in yuan, the need to hold, trade or accumulate dollars declines. Lower demand for the dollar means a smaller global “float” of dollar-settled flows, which could slightly erode the U.S.’s ability to borrow cheaply and maintain favourable financing conditions.

2. Erosion of Dollar-Based Leverage

Beyond pure finance, the U.S. dollar confers strategic advantages:

Because many payments clear through dollar-linked systems, the U.S. has leverage over sanctions enforcement, cross-border capital flows, and international financial policy.
If more countries settle trade or debt in yuan, the U.S. loses some of that leverage: they are less exposed to U.S. rate hikes or sanctions via dollar channels.
A recent analysis made clear: the “exorbitant privilege” of the U.S. dollar — the ability to finance large deficits at low cost — is under structural pressure as the dollar’s dominance is challenged.

Thus, when African borrowers shift their transactions toward yuan, they reduce their dependency on the U.S. financial infrastructure and thereby diminish the U.S.’s leverage – strategic, economic and financial.

3. Diminished Dollar Recycling & Interest Income

Part of the dollar system’s benefit to the U.S. comes from other countries holding U.S. assets: they accumulate dollars, invest in U.S. Treasury securities, and thus recycle trade surpluses back into the U.S. financial system.

A reduction in dollar accumulation (because trade and borrowing shift to yuan) means fewer foreign-held U.S. assets, potentially raising U.S. borrowing costs over time.
While Africa alone is a small piece of the global picture, if the pattern spreads across many emerging markets, the cumulative effect could be non-trivial.

4. Symbolic and Long-Term Strategic Decline

Although the shifts are incremental, they carry broader significance:

The dollar’s dominance is not guaranteed: although still strong, its share of reserves and payments has slipped from earlier peaks (e.g., 65% of reserves a decade prior vs 58% end-2024).
When trading partners increasingly use other currencies (like the yuan) for trade or financing, it signals a diversification away from U.S.-centred finance.
Even if the dollar doesn’t collapse, losing “exclusivity” means the U.S.’s “first among equals” status in global finance marginally weakens.

5. Why the Loss is Measured, Not Immediate

It’s important to emphasize that while the U.S. does lose some advantages, the losses are moderate and gradual, because:

The dollar remains overwhelmingly dominant. For instance, even as of recent data, the U.S. dollar still accounts for nearly 90% of FX trades and remains the unit of account in most global trade.
The yuan, despite gains, is still small: its share of global payments recently was about 4–5%, far behind the dollar.
Many countries continue to prefer dollar invoices or major-currency settlements because of liquidity, market infrastructure, and historical inertia.
The deep U.S. Treasury market, rule of law, and banking system still give the dollar structural advantages hard to replicate quickly.

6. Additional Facts Strengthening the Case

The share of the yuan in global payments rose from about 2.1% to 4.3% in recent years, showing progress but still a long way from the dollar’s near 50%+ level.
According to SWIFT data, the yuan overtook the Japanese yen to become the 4th most-active currency for global payments by value, but its share remains low—for example, 3.75% of global payments in December 2024.
Research shows that decline of dollar usage is occurring both in reserves and in the share of foreign-currency debt issuance – a sign of “de-dollarization.”
Analysts at institutions like JPMorgan warn that if the dollar’s dominance erodes, U.S. financial assets may underperform and yields may rise.

7. Bringing It Back to Africa’s Shift

When countries such as Kenya convert large dollar loans into yuan, or Ethiopia moves into yuan-based financing:

They are reducing their exposure to U.S. interest-rate policy: higher U.S. rates strengthen the dollar, making repayments cost more in local currency.
They are creating a debt cycle tied to China’s trade and currency flows (yuan), not to the dollar at large.
These micro-decisions sum up to: less global demand for dollars in trade and debt, and more flows in alternative currencies (like the yuan) for specific bilateral deals.
For the U.S., that means slightly less room for using dollar-based systems to influence global outcomes, a marginal reduction in global financing advantage, and a signal that the global monetary order is evolving.

8. Strategic Implications

Short-term: The U.S. doesn’t face an immediate crisis — the dollar remains central. But these trends suggest a gradual erosion of edge.
Medium/long-term: If many more countries adopt yuan-denominated debt and trade, the network effects of the dollar (where everyone uses dollars because everyone else does) could weaken. That would reduce U.S. ability to finance deficits cheaply, and slightly reduce global demand for dollar-based assets.
For policy: The U.S. may need to reinforce the attractiveness of dollar-denominated assets (e.g., by maintaining deep, liquid markets, predictable policy, robust institutions) if it wants to retain its edge.

Africa’s Role in the Currency De-Dollarization

Yes, the U.S. does lose something when African nations shift to using the yuan instead of the dollar for transactions with China. The losses are not dramatic overnight, but they are real and structural:

Lower global demand for the dollar reduces the “exorbitant privilege” of issuing debt at low cost.
The U.S.’s strategic financial leverage is slightly diminished as fewer transactions and settlements pass through dollar-based channels.
The symbolic implication is that the U.S. is no longer the only centre of global finance, even if it remains the largest.

For Africa: this shift offers greater insulation from U.S. rate moves and ties debt and trade closer to China, their key trade partner. For the U.S.: it signals that maintaining dollar dominance requires vigilance, not complacency.