This is a fascinating and complex issue that Ethiopia is currently exploring with China, following a similar move by Kenya. Ethiopia is reportedly discussing converting a portion of its approximately $5.38 billion debt owed to China from US dollars (USD) to Chinese Yuan (CNY) or Renminbi (RMB).

Ethiopia, which is a BRICS member, is indeed in early-stage discussions with China to potentially convert a portion of its substantial US dollar-denominated debt into Chinese yuan-denominated loans.

The primary goal for Ethiopia, as stated by the Governor of the National Bank of Ethiopia, Eyob Tekalign, is to reduce financing costs (interest savings) and strengthen trade with its key partner, China.

The move comes after Ethiopia and China had already signed a currency swap deal aimed at facilitating trade in Ethiopian Birr and Chinese Yuan, which aligns with China’s broader goal of internationalizing the yuan.

China is actively pursuing the internationalization of the yuan, and proposals like this one from Ethiopia (and a similar one from Kenya) align perfectly with that objective by increasing the yuan’s use in global finance.

The quoted analysis that the conversion of loans would “hit” the US dollar and contribute to a “new multipolar world” reflects the common view among analysts and proponents of de-dollarization.

• Any move by countries to shift away from using the US dollar for international transactions, debt, or reserves chips away at the dollar’s global dominance (its reserve currency status).
• If BRICS members and other developing nations increasingly use local currencies or the yuan for settlements, it reduces the demand for the USD, which is a key part of the broader de-dollarization trend.

Current reports indicate that Ethiopia is in active discussions with Chinese authorities (specifically the Export-Import Bank of China and the People’s Bank of China) to convert part of its dollar-denominated debt to Yuan-denominated loans. This is a negotiation directly between Ethiopia and its Chinese creditors.

Ethiopia’s debt conversion efforts are a matter between Ethiopia and its creditors (like China, or Eurobond holders, etc.), not a matter requiring US approval.

If the agreement is set, Ethiopia will pay interest in Yuan, it will also create external demand for the currency. Ethiopia must either earn Yuan through trade with China or convert its U.S. dollar reserves (or other foreign currency) into Yuan. This increases the global use and circulation of the CNY.

By making it easier for allies and partners in the “Global South” to manage their debt, especially by offering lower interest rates (as seen in the 3% vs. 7.25% example for Ethiopia) China deepens economic ties and reduces the influence of the Western-dominated financial system.

The conversion is seen as an attempt to reduce the immediate and painful burden of high US interest rates and dollar scarcity, but it substitutes one currency risk (USD appreciation/scarcity) for another (Yuan appreciation/liquidity) and deepens ties with China.

For fact if the value of the USD fluctuates, it has less impact on the real value of the debt repayment for China’s state-owned banks. Having more of its sovereign debt denominated and serviced in its own currency shields China from exchange rate risk.

This strategy is a win-win for the Chinese government’s financial goals and for the indebted African nations seeking fiscal relief. It is part of a deliberate, long-term strategy to expand the Yuan’s global reach, not a risky move that would cause an economic crisis for China.