(Last Updated on January 7, 2016 by Editor)
ZIMBABWE – In a fascinating move, Zimbabwe has announced a plan to adopt the Chinese yuan as its official currency. China’s influence over the Sub-Saharan African country will likely continue to grow with the deal, which will erase about $40 million of Zimbabwe’s debt, The Washington Post reports.
The agreement marks the official death of the Zimbabwean currency, which has been in circulation for 35 years. In 2009, the country abandoned the Zimbabwean dollar as its official currency. Seven months ago, the government announced it would no longer be legal tender. The country’s central bank then started taking the local currency out of circulation.
As part of the agreement, the Zimbabwean government will encourage the yuan’s use. In the plan’s first stages, Chinese tourists can use the yuan, and Zimbabwe will start paying back its debt, Reuters reports.
The switch to the yuan has apparently been a long time coming. Zimbabweans have already been using foreign currencies from the US and South Africa for nearly a decade. That, combined with years of extreme inflation, has made the Zimbabwean dollar virtually worthless.
Zimbabwe is looking to strengthen ties with the Chinese government, which has given the African country more than $1 billion in low-interest loans since 2010. The Zimbabwean government also wants to ramp up trade between the two countries. Some economists believe that China actually makes out better on the deal, since it will extend its economic power over Zimbabwe.
The plan is yet another reminder of China’s expanding stake in sub-Saharan Africa. China has been accused of exploiting Africa’s vast mineral and energy resources at the expense of the environment and its people. Last month, Chinese President Xi Jinpeg signed 10 agreements, including a $1 billion loan to build a giant nuclear power plant in Zimbabwe.
“China is desperate for the consumer goods market, basically whatever anyone with the buying power can pay for,” economist John Roberston told. “But people accepting payment will want it in [US] dollars — as opposed to yuan — and that will be very damaging to China’s interest here in Zimbabwe.”
This newest deal might be one of the largest efforts by China to expand its currency to other countries. 15 nations besides China use the yuan (either officially or not). In December, it was named as one of the world’s top currencies.
Although it may seem strange for a country to adopt the currency of another, many similar deals have happened in the past. Scotland officially uses the British pound, 15 countries besides France use the franc, and 10 countries use the US dollar.