ZIMBABWE – Zimbabwe could start using the Chinese yuan alongside the United States dollar as early as 2016, with the Reserve Bank of Zimbabwe and People’s Bank of China already finalising modalities.
Although the yuan – also known as the renminbi – is officially part of Zimbabwe’s multi-currency system, its use has not been activated as the market predominantly relies on the US dollar.
It has, however, increasingly gained relevance on the back of major economic deals between Harare and Beijing and its co-option into the IMF’s list of Special Drawing Rights.
On November 30, the IMF added the Chinese currency to its SDR reserves alongside the Euro, the US dollar, the British pound and the Japanese Yen.
Several African countries are already using the currency when transacting with China, with South Africa leading the pack as over 30 percent of its business with the Asian giant is denominated in the yuan.
Finance and Economic Development Minister Patrick Chinamasa told The Sunday Mail that, “Reserve Bank of Zimbabwe Governor, Dr John Mangudya has opened negotiations with the People’s Bank of China. This is to see whether we can enhance the use of the renminbi in Zimbabwe.
“Discussions are underway, as we speak. It will all happen in the context of the RMB being part of our basket of currencies and being legal tender in Zimbabwe after our pronouncement last year.”
He added: “I can give an example to say that if we want to promote Chinese tourist arrivals, they are free to come and pay in the Chinese currency. We can make that facility available. What we and the People’s Bank of China then need to do after collecting this currency is have a system of clearance so that we are able to use what has been paid for in the renminbi for our services in Zimbabwe.
“We will have that pool of money and we can then use it to honour our obligations with China. This is basically what happens.”
Dr Mangudya said the Chinese currency would flourish in Zimbabwe if underpinned by increased production.
“The Reserve Bank of Zimbabwe and the People’s Bank of China are investigating putting in place a renminbi facility within the multi-currency system to promote bilateral trade and investment between the two countries. The facility can either be a bond or swap and would need to be buttressed by underlying trade and investment flows,” he said.
“In essence, production is the cornerstone for any currency development, whether it is the RMB, or any other currency. This is the backbone of any currency system to be sustainable. Production is the pillar of a currency.”
The RBZ chief said it is logical to adopt the yuan given China’s position as the world’s second biggest economy and largest consumer of goods. He said a number of countries had already taken this route, moreso under bilateral payment agreements.
“Given the high level of trade and investment between China and Zimbabwe, and also the fact that China is the second largest economy in the world and the largest consumer of world commodities, it is desirable for Zimbabwe to ensure that the renminbi is tradable within the multi-currency system.
“This is not new because China has bilateral payment arrangements with many countries such as the United Kingdom, South Africa, and Ghana. In fact, there are more than 28 countries in the world that have such arrangements with China.
“The only issue with Zimbabwe is that we don’t have our own currency, so we cannot swap with our own currency. Since we do not have our own currency, we have to think away from the normal course of bilateral payment arrangements. So, the issue is how we contextualise such financial cooperation within the multi-currency system.”
Zimbabwe’s chief envoy to China, Ambassador Paul Chikawa, said the RMB is now an international currency, and Harare stands to reap huge benefits by actively adopting it in its multi-currency basket.
“The renminbi cooperation will greatly improve investment as well as trading. This currency is now an international currency of note after the IMF resolved to include it under its SDRs behind the US dollar and the pound, but ahead of the euro and the yen.
“The renminbi has also overtaken the yen in global settlements as Beijing holds the position as the top Foreign Currency holder at about US$3, 8 trillion.”
China is Zimbabwe’s second largest trading partner after South Africa, as annual trade between Harare and Beijing exceeds US$1 billion.
Cooperation between the two countries reached greater heights in early December 2015 when China’s President Xi Jinping reciprocated President Mugabe’s earlier visit to Beijing.
Both leaders witnessed the signing of 12 major deals that cover economic and technical cooperation, with Zimbabwe now among the top six African countries benefiting from China’s external development programme.
The Asian giant is now Africa’s largest trading partner, with the value of trade increasing 20 times in the past 15 years reaching US$200 billion in 2014, according to the International Institute for Environment Development.