Zambia has begun early discussions with China on a possible currency swap agreement, a move that could reduce the country’s reliance on the US dollar and lower risks linked to foreign debt payments.
The talks are still at a technical level. However, they signal Zambia’s growing effort to manage its debt more efficiently while strengthening financial ties with its largest bilateral lender.
Why a Currency Swap Matters
A currency swap allows two countries to exchange their local currencies for trade and financial transactions. This reduces the need to convert money into US dollars, which can be costly and risky when exchange rates fluctuate.
For Zambia, such an agreement with China could make it cheaper and easier to service Chinese loans. It would also protect the country from sudden dollar shortages or currency volatility.
Linked to Zambia’s Debt Restructuring Efforts
The discussions come as Zambia continues to finalise a long and complex debt restructuring process. Years of heavy borrowing left the country under financial strain, forcing it to renegotiate repayment terms with creditors.
According to officials in the finance ministry, the currency swap talks form part of broader efforts to stabilise public finances and reduce exposure to foreign exchange risks.
Zambia’s debt management office has said the focus is on long-term sustainability rather than short-term relief.
Growing Use of the Chinese Yuan
Zambia recently made history by becoming the first African country to formally accept the Chinese yuan for mining taxes and royalties. Mining is the backbone of Zambia’s economy, with copper exports providing major government revenue.
By accepting yuan payments, Zambia aims to align its revenue streams more closely with its debt obligations to China. This reduces conversion costs and makes repayment more efficient.
Officials say holding yuan reserves allows Zambia to service Chinese debt in a more cost-effective way.
China’s Expanding Financial Influence in Africa
Zambia’s move reflects a wider trend across Africa. China has spent years pushing to make the yuan a global currency used beyond its borders.
Africa has become an important testing ground for this strategy, especially in countries rich in minerals, energy, and infrastructure projects funded by Chinese loans.
Currency swaps help promote the use of the yuan in trade, taxes, and debt payments, reducing dependence on the US dollar.
Kenya’s Example
Zambia is not alone in exploring this approach. Kenya recently converted part of its Chinese debt into yuan after restructuring a large railway loan.
The move is expected to save Kenya hundreds of millions of dollars each year by cutting currency conversion costs and easing pressure on public finances.
These examples show how African countries are increasingly using alternative currencies to manage debt more efficiently.
Benefits and Risks
Supporters say currency swaps can lower costs, improve liquidity, and reduce exposure to dollar shocks. They also allow countries to trade more directly with key partners.
However, critics warn that increased use of the yuan could deepen financial dependence on China. Transparency and careful management are needed to avoid new risks.
Economists say the success of such agreements depends on strong oversight and balanced foreign relations.
What Comes Next for Zambia
The talks between Zambia and China remain at an early stage. Any agreement would require detailed negotiations, legal frameworks, and approval from both governments.
If finalised, the move could mark a major shift in how Zambia manages foreign debt and conducts international transactions.
For now, it signals a clear intention by Zambia to explore new tools to strengthen its financial position while navigating a challenging global economic environment.