Ethiopia has begun negotiations with China to convert at least a portion of the $5.38 billion it owes Beijing from U.S. dollars to yuan-denominated loans, marking the latest African nation to join a growing global movement toward de-dollarization that could reshape the architecture of international finance.
The move, confirmed by Ethiopia’s central bank governor Eyob Tekalign, comes just weeks after neighboring Kenya successfully completed a similar currency conversion on its $5 billion railway loan from China, saving the East African nation approximately $215 million annually in debt servicing costs.
Following Kenya’s Precedent
Tekalign disclosed that discussions for a potential swap with the Export-Import Bank of China and the People’s Bank of China began during a visit to Beijing last month, signaling Ethiopia’s determination to reduce financing costs and strengthen bilateral trade with its largest creditor.
The timing is strategic. Kenya completed its conversion of railway loans from dollars to yuan in early October 2025, with Finance Minister John Mbadi announcing the move would cut annual interest payments by approximately $215 million. The successful implementation of Kenya’s currency swap has provided a working model for other African nations grappling with similar debt challenges.
The negotiations aim to help reduce the substantial amounts African nations spend annually on servicing Chinese debt and create more fiscal flexibility in national budgets. For Ethiopia, which faces significant economic pressures, the potential savings could provide crucial breathing room for a government struggling to balance debt obligations with development needs.
Ethiopia’s Debt Crisis and Economic Context
Ethiopia’s pursuit of a yuan conversion comes amid severe financial strain. The country defaulted on a loan payment in December 2023, becoming the third African country to do so, joining Ghana and Zambia. The default was precipitated by a combination of factors including the costs of internal conflict, the COVID-19 pandemic, and the weight of billions in Chinese loans.
Chinese loans constitute about half of Ethiopia’s $28 billion in foreign debt accumulated over the past 25 years, with Ethiopia having borrowed $13.7 billion from China since 2000 to build roads, railroads, water systems and telecommunications infrastructure. Most of these loans came from the Export-Import Bank of China or the China Development Bank and carry higher interest rates than loans from institutions like the World Bank or International Monetary Fund.
The opacity of Chinese loan agreements has added complexity to Ethiopia’s debt management. The terms are confidential, making it difficult for financial experts and international lenders to know the exact status of loans or default conditions.
The prospect of a currency swap has already influenced markets positively, with Ethiopia’s $1 billion Eurobond advancing 4.3 percent to 99.69 cents on the dollar in London, marking its largest increase in nearly two years and reaching the highest level since January 2021.
The Broader De-Dollarization Movement
The Ethiopia-Kenya moves represent more than isolated bilateral arrangements—they are part of a larger, accelerating global trend toward reducing dependence on the U.S. dollar in international transactions.
The BRICS bloc expansion has become a focal point for de-dollarization efforts, with the organization welcoming new partner countries including Nigeria, Malaysia, Thailand, Vietnam, Uganda, and others, bringing the group to represent 47.9% of the global population. Ethiopia officially joined BRICS as a full member in January 2024, positioning itself within an economic bloc increasingly focused on alternatives to dollar-denominated trade.
China has chosen Africa as a key launching ground for its push to internationalize the yuan, with 53 of Africa’s 54 nations securing 100% tariff-free access to the Chinese market in a comprehensive trade framework. This represents an unprecedented coordination between a rising power and an entire continent.
In June 2025, South Africa’s Standard Bank became the first African bank to enable direct interbank yuan payments with China, bypassing the U.S. dollar entirely. The move demonstrates how financial infrastructure is being built to support yuan-denominated transactions across the continent.
Strategic Implications for China
For Beijing, the currency conversions serve multiple strategic objectives. Converting dollar-denominated loans to yuan advances China’s long-standing goal of internationalizing its currency and reducing global dependence on the dollar in international trade and finance.
Historical precedent suggests China has shown greater willingness to provide debt relief for yuan-denominated loans compared to dollar-based debt. During previous debt restructuring efforts, China favored extending repayment periods rather than reducing principal amounts, and this pattern may benefit countries that convert to yuan.
Chinese diplomatic officials have pledged continued support for Ethiopia and indicated that “new progress will be gained in local currency swaps and cross-border settlement cooperation”, suggesting the yuan conversion is part of a broader financial connectivity strategy.
The conversions also reduce China’s own exposure to dollar fluctuations and U.S. monetary policy. As tensions between Washington and Beijing persist, diversifying away from dollar-based financial relationships provides China with greater economic autonomy.
Economic and Political Risks
While the potential savings are attractive, currency conversions carry inherent risks for African borrowers. Converting loans to yuan exposes these nations to fluctuations in the Chinese currency, creating a new form of vulnerability even as it reduces dollar exposure.
About 68% of Kenya’s external debt stock is denominated in dollars, creating substantial currency risk. By diversifying into yuan, Kenya and Ethiopia are essentially trading one form of currency risk for another, betting that yuan exposure combined with growing trade ties with China will prove more manageable than continued dollar concentration.
Critics have raised concerns about whether these conversions simply deepen African nations’ dependence on China. While the immediate financial relief is tangible, the long-term implications of shifting from dollar to yuan debt remain uncertain, particularly if China’s economic growth slows or if geopolitical tensions escalate.
Ethiopia currently owes approximately $30 billion to various creditors, including China, and concerns remain about the country’s ability to meet repayment obligations without further external assistance. A currency conversion alone may not solve Ethiopia’s fundamental debt sustainability challenges.
Market Reactions and Expert Perspectives
Financial analysts have offered mixed assessments of the conversions. The immediate market response has been positive, with both countries seeing improvements in bond valuations and investor sentiment following announcement of the negotiations.
Ethiopia’s central bank governor emphasized that “China is a key partner for us, with rising trade and investment flows”, highlighting the strategic relationship underlying the financial arrangements.
However, questions remain about the broader implications. The conversions may provide short-term fiscal relief, but they also signal a fundamental shift in global financial architecture—one that could accelerate if more countries follow Ethiopia and Kenya’s example.
U.S. Response and Global Implications
The de-dollarization trend has not gone unnoticed in Washington. President Donald Trump has threatened to impose tariffs of 100-150% on BRICS nations if they pursue de-dollarization, reflecting American concerns about challenges to dollar dominance.
Data from the International Monetary Fund shows a gradual decline in the USD’s share of global foreign exchange reserves, from approximately 85% in the 1970s to 58% by 2022. While the dollar remains dominant, its share is eroding as countries diversify their reserve holdings.
Until recently, nearly 100 percent of oil trading was conducted in dollars; however, in 2023, one-fifth of oil trades were reportedly conducted with non-dollar currencies. This shift in commodity markets represents one of the most significant challenges to dollar hegemony.
Looking Ahead
The success of Kenya’s conversion and Ethiopia’s pursuit of a similar arrangement may inspire other African nations burdened with Chinese debt to seek comparable deals. Angola, Nigeria, and Zambia—all significant Chinese borrowers—could emerge as candidates for yuan conversions in the coming years.
Russia reported in 2024 that 90 percent of its trade within the BRICS bloc was conducted in national currencies rather than dollars, demonstrating that alternatives to dollar-based trade are already functioning at scale in certain contexts.
The question is no longer whether de-dollarization will occur, but rather how quickly and comprehensively it will reshape global finance. Ethiopia and Kenya’s currency conversions represent practical, incremental steps in this transformation—moves driven by immediate fiscal necessity that may collectively contribute to a more fundamental reordering of the international monetary system.
For now, both countries are focused on the immediate benefits: lower interest payments, improved debt sustainability, and stronger economic ties with their largest bilateral creditor. Whether these arrangements ultimately serve their long-term interests will depend on factors ranging from China’s economic trajectory to the evolution of global trade patterns and geopolitical alignments in an increasingly multipolar world.
As other nations watch the Ethiopia-Kenya experiments unfold, the precedent being set could prove far more significant than the dollar amounts involved—potentially marking an inflection point in the decades-long dominance of the U.S. dollar in international finance.
