Zimbabwe's surprising recent announcement that it would shift to the Chinese yuan as its reserve currency is a sign of friendship with China, but probably not much more, say regional business people and economists.
The announcement last week raised eyebrows among economists outside the country. The nation’s finance minister touted the move as a huge advance in relations between the two nations, and noted that China would use the occasion to to cancel a bundle of debts, estimated at $40 million, that are due this year.
But in the cash-strapped southern African nation, local economists say the streets are already awash with foreign currencies since the death of the grossly inflated Zimbabwean dollar in 2009.
In 2014, the nation’s central bank opened the gate for 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.
Awash with foreign currencies
Business consultant Phillip Chichoni says this announcement is unlikely to change things for the businessmen he works with.
“I don’t think it will make much difference to anyone, as we’re already using foreign currencies," he said.
And, he notes, despite the yuan being acceptable legal tender for nearly two years now, he has yet to see one. He says most traders prefer the stability of the U.S. dollar, which is the nation’s de facto currency.
The nation’s economic collapse — a legacy of years of mismanagement and unpopular decisions by the government — meant the Zimbabwean dollar ascended to inflationary heights of more than 230 million percent before the currency was pulled in 2009. Near the end, the reserve bank printed a 100-trillion-dollar bill. And that didn’t go very far — at the time, a loaf of bread ran a cool $300 billion.
The market has since stabilized with the widespread adoption of the U.S. dollar, though Zimbabwe’s cost of living is still significantly higher — about 60 percent higher — than that of neighboring South Africa.
Still, BancABC chief economist James Wade says the move toward the yuan — however symbolic — is a good one for Zimbabwe because it widens options.
“Well, it’s a good idea in the sense that it’s not like we’re forcing people to use the Chinese yuan," he said. "What you’re saying, is we are expanding options that they can use. There could be some businesses that are very much doing a lot of business with Chinese companies. So instead of them changing from U.S. to yuan, yuan to U.S., If you give them that option, it’s up to them.”
And, he notes, the context matters: China’s president made a state visit to Zimbabwe this month, and signed a stack of economic agreements including a billion-dollar loan for a thermal power plant. If this gesture brings in more Chinese investment — and therefore more development — Zimbabweans will profit, no matter what currency they use.