One of South Africa's major banks is exploring its options in China's payment landscape. Absa is considering joining a yuan-based payments platform that would enable direct settlement of cross-border transactions in Chinese renminbi. This strategic move could redefine the dynamics of financial flows between Africa and its largest trading partner, China.
#How is Absa Competing for Yuan Transactions in Africa?
Absa is not alone in this endeavor. Standard Bank, which is the biggest lender in Africa by assets and significantly backed by the Industrial and Commercial Bank of China, has recently marked a milestone by becoming the first African bank to utilize China's Cross-Border Interbank Payment System, commonly referred to as CIPS. This service, which officially began for Standard Bank’s renminbi settlements in September 2025, directly competes with traditional systems.
CIPS serves as an alternative to SWIFT, the well-known Belgium-based network that facilitates most international banking transactions. Beijing developed CIPS specifically to enhance the global usage of the yuan and has successfully broadened its participant base throughout Asia, the Middle East, and into Africa.
#What are the Benefits of Direct Yuan Settlement?
Absa is making efforts to strengthen its presence in the Chinese market, including opening a subsidiary in Beijing. Thus, joining the yuan payments platform makes sense as a continuation of its strategy rather than a sudden change in direction.
Dependency on the US dollar for transactions carries significant costs for African businesses. Each dollar-denominated transaction requires intermediary banking relationships, usually with major US or European banks, which charge fees for their services. This increases the risk exposure for African importers and exporters, who must navigate fluctuating exchange rates between dollars and yuan while converting currencies.
Transacting directly in yuan mitigates these complexities, allowing for streamlined transactions in a single currency pair. Reduced conversions not only decrease operational costs but also speed up settlement periods while lessening the volatility risks linked to the dollar.
Chinese banks have been investing in this area for years. Institutions like the Bank of China have established branches across various African nations, laying the necessary groundwork for facilitating yuan-dominated transactions.
Absa's current offerings already include cross-border payment solutions for corporations and institutions. By incorporating direct yuan settlement, it would refine these existing services without the need for extensive new infrastructures. The bank's Beijing office provides a critical advantage over many of its African competitors who lack a direct presence in China.
#What Investors Should Watch For
China's push for the internationalization of the yuan is evident through various initiatives such as bilateral currency swap agreements, the expansion of CIPS, and encouraging trading partnerships to embrace renminbi transactions over US dollars.
However, there are complexities involved. Operating with the yuan requires navigating China's strict capital controls, which remain robust despite ongoing liberalization. The renminbi is not yet fully convertible, meaning that Chinese authorities have the capacity to adjust cross-border flow regulations with very little warning.