Zimbabwe announced last week that it would shift to the Chinese yuan as its reserve currency. A reserve currency is a foreign currency held in large quantities by governments and financial institutions to pay international debts. Patrick Chinamasa, Zimbabwe’s Minister of Finance and Economic Development said China agreed to cancel about $40 million of Zimbabwe’s debts this year. He also said the move was a sign of the friendship between China and Zimbabwe, a southern African country.
It is also a sign of the growing economic ties between China and Zimbabwe. China is Zimbabwe’s largest foreign investor, with interests ranging from construction and energy to telecommunications. China has also become the largest exporter of Zimbabwean products – mainly tobacco and minerals, such as gold and diamonds. Local economists said Zimbabwe is flooded with foreign currencies since the inflated Zimbabwean dollar collapsed in 2009.
In 2014, the nation’s central bank permitted traders to use the U.S. dollar, the South African rand, Botswana’s pula, the British pound, the euro, the Australian dollar, the Indian rupee, the Japanese yen and the Chinese yuan. Zimbabwe has allowed the yuan as a legal currency for two years.
BancABC chief economist James Wade says the yuan increases Zimbabwe’s options. “It’s not like we’re forcing people to use the Chinese yuan,” he said. “…we are expanding options that they can use.” And, he notes, the context matters.
China’s president made a state visit to Zimbabwe this month, and signed many economic agreements. This included a billion-dollar loan for a thermal power plant. If this action brings in more Chinese investment and more development, Zimbabweans will profit, no matter what currency they use.
US$ 0.15 = 1 CN