ADVANTAGES: YUAN – KWACHA AS LEGAL TENDER BY AN ECONOMIST- Barbrah Chama

By Barbrah Chama

ADVANTAGES: YUAN – KWACHA AS LEGAL TENDER BY AN ECONOMIST

You can solidify your post on yuan- kwacha as legal tenders if you wish so.👇🏿👇🏿👇🏿

This is good news for both Zambia and China, especially on trade benefits! The use of Zambian kwacha and Chinese yuan for trade between Zambia and China can provide several economic trade benefits. Let’s delve into more detail regarding the economic trade benefits of using the Zambian kwacha and Chinese yuan for trade between Zambia and China:

1. Simplification of transactions: When both countries use their own currencies for trade, it eliminates the need for currency exchange. This simplification can significantly reduce transaction costs by eliminating fees associated with exchanging currencies and mitigating the risks of exchange rate fluctuations. It also saves time and administrative efforts that would otherwise be spent on currency conversion.

2. Increased price stability: By using their respective local currencies, Zambia and China can have more control over their exchange rates and monetary policies. This stability helps in reducing the volatility of prices and enhances predictability in trade transactions. Businesses can make more accurate pricing decisions and plan for the future with greater certainty.

3. Boost in bilateral trade: The use of local currencies can facilitate trade between Zambia and China by removing the barriers posed by foreign exchange requirements. It creates a more conducive environment for businesses to engage in trade and investment activities, as they can directly transact in their own currencies. This not only streamlines trade processes but also fosters trust and confidence between trading partners, potentially leading to increased trade volumes and deeper economic integration.

4. Enhanced economic independence: When countries engage in trade using their own currencies, they reduce their dependence on third-party currencies, such as the US dollar. This autonomy can provide economic benefits by insulating countries from external shocks, such as fluctuations in global exchange rates or financial market instability. It also allows countries to exercise greater control over their monetary policies and manage their economies in a way that aligns with their specific needs and objectives.

5. Promotion of financial market development: The use of local currencies for trade can foster the growth and development of domestic financial markets. It encourages the establishment of new financial instruments, such as currency futures and options, which can help manage exchange rate risks. Additionally, increased trade in local currencies can contribute to the liquidity and depth of local financial markets, attracting more investors and stimulating overall economic growth.

However, it is essential to recognize that adopting local currencies for trade also comes with challenges. Some potential considerations include ensuring sufficient liquidity in the local currency markets, managing exchange rate risks effectively, addressing potential imbalances in trade flows, and enabling efficient settlement mechanisms. These challenges require close coordination and cooperation between the relevant authorities in Zambia and China to establish a robust framework for trade settlement in local currencies.