Yuan Mining Taxes, the Kwacha, and a Misread of Monetary Reality

🇿🇲 FACTS 1ST | Yuan Mining Taxes, the Kwacha, and a Misread of Monetary Reality

Zambia’s decision to allow mining tax payments in Chinese yuan has triggered sharp political reactions, particularly from opposition figures who argue that the move weakens the kwacha and strengthens China’s currency. One of the loudest claims came from Miles Sampa, who wrote: “Quoting or receiving Chinese Yuan payments for our high price Copper is not a wise decision… We will come make payment for our Copper ONLY in Kwacha. It will then appreciate to 1:1 with the Yuan & to K9 per US Dollar.”

Sampa’s statement has gained traction online. It is also economically inaccurate.

First, the facts. Zambia has not replaced the kwacha as its unit of account. The policy allows a portion of mining tax obligations to be settled in yuan, reflecting the currency in which some mining firms earn revenues and settle transactions. This is a settlement mechanism, not currency substitution. The kwacha remains legal tender, the tax base remains domestic, and the central bank retains full control of monetary policy.

Second, the claim that paying taxes in yuan “strengthens the yuan” misunderstands how currencies gain or lose value. Currency strength is driven by trade balances, capital flows, interest rates, reserves, and confidence, not by isolated tax settlement arrangements in one country. China’s yuan is influenced by the scale of its economy and global trade, not Zambia’s mining taxes. Zambia, on the other hand, benefits by reducing dollar demand, diversifying inflows, and easing pressure on foreign exchange markets.

Third, the suggestion that forcing all payments into kwacha would automatically push the exchange rate to “1:1 with the yuan” or “K9 per dollar” has no grounding in macroeconomics. Exchange rates do not move by decree. They respond to productivity, exports, reserves, fiscal discipline, and credibility. Even the strongest currencies in the world do not achieve parity through administrative instruction.

Fourth, Zambia’s current currency stability must be understood in context. Between 2011 and 2021, the country accumulated unsustainable debt, ran persistent fiscal deficits, and relied heavily on external commercial borrowing. That period ended with default, collapsed investor confidence, and a sharply weakened kwacha. The reforms being implemented now are corrective, not experimental. They are designed to stabilise what was destabilised.

Fifth, allowing yuan-denominated settlements aligns with Zambia’s export structure. China is Zambia’s largest copper buyer. When exporters and tax-paying firms already transact in yuan, permitting tax payments in that currency reduces conversion costs, limits speculative demand for dollars, and improves liquidity management at the central bank. This is standard practice in countries seeking to diversify reserve inflows.

Sixth, the policy does not exclude the kwacha.
The Bank of Zambia can convert yuan inflows into kwacha or other reserve currencies as needed. What matters is reserve accumulation and stability, not the symbolic purity of insisting on one currency at every transaction point.

Finally, the reaction from parts of the Patriotic Front reflects a deeper issue: weak economic literacy during its time in office. Decisions taken between 2011 and 2021 left Zambia exposed, indebted, and vulnerable to shocks. The current administration’s policies, including currency diversification and disciplined fiscal management, are responses to that legacy.

The truth is simple. The yuan tax settlement does not weaken Zambia. It reflects pragmatism in a multi-currency global economy. Strong currencies are built through production, exports, confidence, and fiscal discipline.

© The People’s Brief | Ollus R. Ndomu