Yuan Express: What Kenya’s Ditching of the Dollar on its Chinese-Built Railway Means
Kenya has made a bold and unprecedented financial move by converting its multi-billion-dollar Standard Gauge Railway (SGR) loan from the Export–Import Bank of China from U.S. dollars to Chinese yuan. What might appear to be a mere accounting adjustment is, in fact, a decision that might save Kenya hundreds of millions of dollars annually while drawing Kenya closer into China’s financial orbit. The move raises a fundamental question that will shape the country’s economic narrative, possibly for years to come: is this a clever act of self-preservation or the beginning of a deeper dependency on Beijing?
The conversion, announced in early October 2025, affects roughly $5 billion worth of SGR loans originally borrowed to fund the Mombasa-Nairobi and Nairobi-Naivasha railway sections. Kenya will now service this debt in yuan, replacing a floating U.S.-dollar interest rate with a fixed yuan-based rate at 3%. Before this, Kenya was paying close to 6% – LIBOR (London Interbank Offered Rate) plus roughly 3%. As the shilling lost its strength against the dollar, the cost of servicing the debt ballooned. Treasury officials say the restructuring will save the government roughly $215 million annually through lower interest costs and reduced exposure to foreign-exchange volatility. These are substantial savings for any country, but especially so for Kenya, whose fiscal space is constrained and public debts near 70% of GDP.
Unlike past restructurings, this is not a postponement or forgiveness of debt, but a change in the currency of obligation. This move will shift a large portion of Kenya’s repayment exposure away from the dollar and create an unprecedented shift in Africa’s infrastructure finance.
A Currency Under Pressure, Now in Transition
For much of the past three years, Kenya’s debt pressures have been shaped by the volatility of its currency. The Kenyan shilling lost nearly a quarter of its value between 2022 and early 2024, driven by global tightening cycles,. The depreciation inflated the cost of dollar-denominated debt, adding substantially to Kenya’s repayment obligations in shilling terms.
In 2025, however, the shilling stabilized, trading and remaining at around KSh 129 to the dollar by mid-year. The rebound, supported by improved foreign exchange inflows and decisive Central Bank intervention, has provided some much-needed breathing room. But this new stability has not erased the fiscal scars of earlier depreciation: many of Kenya’s external loans, like this SGR one, remain structured in foreign currencies, meaning past weaknesses continue to affect the present.
Within that context, then, the yuan-conversion is both tactical and symbolic. On the one hand, it diversifies Kenya’s currency exposure, aligning its repayment obligations more closely with the financial ecosystem of its largest creditor. On the other, it also reduces demand for U.S. dollars in the local market – as far as Kenya has the ability to do so – which may help maintain the shilling’s newfound stability.
Kenya’s Standard Gauge Railway
The SGR project is itself contentious. Initially conceived as one of Kenya’s Vision 2030 flagship projects as well as a centrepiece of China’s Belt and Road Initiative, the SGR was intended to modernize Kenyan transport by reducing freight costs and linking its ports to mainland markets. Financed primarily by China’s Exim Bank, it cost an estimated US$3.6 billion for the Mombasa-Nairobi line alone, 90% of which was borrowed from China. From the start, critics questioned both its commercial viability and the opacity of the loan contracts. Allegations emerged that strategic assets such as the Port of Mombasa could serve as collateral in the event of default – claims that the government has repeatedly denied. Whatever the case, the SGR has become symbolic of Kenya’s growing dependence on Chinese credit and the risks that come with heavy borrowing in a foreign currency.
Why Yuan?
By converting this particular debt into yuan, the government is not just seeking budgetary breathing room but recalibrating its entire external financing strategy. For Kenya, the benefits are obvious, and some immediate. Substantial interest savings accrued as a result of the move and reduced exchange-rate exposure could free up fiscal space for social programs or public investment. The conversion may also stabilize the shilling by curbing demand for dollars and improving liquidity in the domestic foreign-exchange market. Diplomatically, it strengthens Kenya’s ties with its largest bilateral lender, positioning her as a pragmatic partner willing, as the saying goes, to find good ways to catch mice.
Yet the decision also carries clear risks. The yuan, though relatively stable, is not immune to fluctuations or to political management from Beijing. If Kenya’s financial exposure becomes increasingly yuan-denominated, it could find itself in what some have called a ‘yuan trap,’ accusing China of using debt diplomacy through its Belt and Road Initiative to establish strategic influence over developing nations. In this situation, future borrowing, trade settlements, and reserves become locked into China’s monetary system. This dependency might erode Kenya’s autonomy and leverage in future negotiations, especially if Beijing becomes less flexible in restructuring other loans. Moreover, for as long as most of Kenya’s exports and remittances are still priced in dollars or euros, a divergence between these currencies and the yuan may complicate balance-of-payments management.
Implications
For China this is a major victory. It is a tangible step in the internationalization of the yuan, a demonstration that Beijing can both lend and collect in its own currency on a large scale. Further, it reinforces China’s role as a flexible and solution-oriented partner at a time when many African countries are grappling with debt distress. And the optics are great: where Western creditors often attach strict conditionalities to restructuring which bar many developing nations from accessing finance for critical infrastructure, China is willing to redenominate its loans, portraying it to be a much more accommodating, responsive lender. This image plays well across the Global South, playing up to Beijing’s narrative of “win-win cooperation” as an alternative to predatory lending.
Globally, Kenya’s decision feeds into the broader story of de-dollarization – the slow, deliberate diversification of global finance away from the U.S. dollar. For years, this concept existed mostly in rhetoric, but a multi-billion-dollar loan conversion by two developing nations lends it weight. Other heavily indebted nations such as Zambia, Pakistan, and Sri Lanka – who all owe large sums to China – may look to Kenya’s example as a template for easing debt stress without defaulting. If widely replicated, the consequences of this could gradually shift the architecture of international finance, encouraging central banks to hold more yuan reserves and increasing China’s influence over global liquidity flows.
Conclusion
Still, how this works for Kenya will depend on execution and transparency. If the terms of the conversion remain as opaque as past deals have, or if savings fail to materialize, critical observers will, aptly, frame it as another act of short-term relief at the cost of long-term sovereignty. Investors and institutions such as the IMF, World Bank, and U.S. government will be watching closely to gauge what this means for Beijing and for the international financial system. Conversely, if the deal stabilizes Kenya’s debt profile and strengthens its fiscal resilience, it could become a model of adaptive economic diplomacy.
Kenya’s conversion of its SGR loan into yuan is a calculated risk: it is a tactical response to an immediate currency crisis that may carry strategic repercussions far beyond its borders. Indeed, the country has gained valuable breathing room by making this decision, but what could be the cost? Whether this gamble leads to enduring dependence will be determined not by this deal alone, but by what comes next: whether Kenya continues to diversify its lenders, disclose its agreements transparently, and build enough domestic resilience to manage its external ties on its own terms. For now, what’s clear is that the world’s debt map is changing, and Kenya has just drawn a new line across it.
