Zimbabwe’s move to make the yuan legal tender will ease, not solve, its economic woes

Mxolisi Ncube says the adoption of the renminbi as a reserve currency is good business and also a move by President Robert Mugabe to show Western countries he doesn’t need them

PUBLISHED : Thursday, 14 January, 2016, 1:34pm
UPDATED : Monday, 27 June, 2016, 11:51am

Zimbabwe’s adoption of the yuan as legal tender is a positive turn in a somewhat treacherous road as the Southern African country seeks to turn around its economy.

Finance minister Patrick Chinamasa announced last month that the country would officially make the renminbi a reserve currency after China agreed to cancel Harare’s US$40 million

debt. Although there are genuine fears that Beijing could gain more from the deal than Zimbabwe, there is little denying that it will improve bilateral trade.

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The Chinese currency has been in use since the start of Zimbabwe’s multicurrency regime in 2009, but only partially and in low-key transactions, as the US dollar and South African rand still dominated trade. The government’s decision should help address Zimbabwe’s niggling liquidity crisis, after the country abandoned its inflation-ravaged dollar seven years ago.

Without a currency of its own and no official agreements with most of the governments whose currencies are currently in use, Zimbabwe has been hamstrung by a number of economic challenges – a flood of worn-out and hardly recognisable US dollar notes, trade limitations and a liquidity crunch to name but a few.

As a report by NKC African Economics, a provider of independent economic and political research, indicated recently, adopting the yuan as a reserve currency should certainly boost the country’s international payments, coming alongside the IMF’s decision to add the renminbi to its basket of reserve currencies. This has seen the yuan gain value, underlining its international importance and improving business confidence in dealing with the Chinese currency.

Mugabe’s ‘Look East Policy’ has seen China become Zimbabwe’s biggest trade partner

Adopted more than a decade and a half ago, President Robert Mugabe’s “Look East Policy” has seen China become Zimbabwe’s biggest trade partner. His government’s latest move should pave the way for more business growth and easier trade deals.

Politically, the use of the yuan is seen as a strategic move by Mugabe to show the West that he can do without them. Critics have pressured the president, arguing that he cannot scoff at the West and yet still use its money to keep his economy above water.

However, the government must not get carried away by celebrating a political victory at the expense of economic growth. There is still a need to prioritise good economic and fiscal planning, and banking sector reforms, in order to boost currency reserves, grow trade and arrest the liquidity crunch.

For China, Zimbabwe’s adoption of the yuan is yet another sign of it becoming a major player in economic and political fields.

Mxolisi Ncube is a Zimbabwean-born journalist who lives in South Africa