At the end of November, the International Monetary Fund (IMF) included China’s currency the Yuan (¥) into the exclusive group of currencies that make up the IMF’s Special Drawing Rights (SDR). This move gave China the acknowledging stamp of approval that it is one of the biggest players in the world’s economy. The United States also backed the move; although many suspect it is getting the chills over China’s growing influence across the globe.
Barely a month after the Yuan joined SDR group of currencies, Zimbabwe President Robert Mugabe is contemplating giving the Chinese Yuan a legal tender in the Southern Africa country by next year. This move will naturally boost Zimbabwe’s runaway hyperinflation, increase liquidity and help support the economy that has been anything but impressive since 2009.
Zimbabwe stopped using its currency back in 2009 after the economy was hit by hyperinflation that has risen by as much as 500 billion percent; effectively making the Zimbabwe’s currency ‘useless’. The country then began using a number of foreign currencies, including the US Dollar and the South African Rand.
Despite the fact that the Chinese Yuan has been included into IMF’s SDR currencies, it is yet to get approval to be used for public transactions. Especially in world markets currently dominated by the greenback. But Robert Mugabe is already warming up to the Yuan and if statements now being made in Zimbabwe are anything to go by. Zimbabwe might become the first country in the world to accept the Chinese Yuan as its legal currency; it might happen as soon as next year.
Photograph: Huang Jingwen/Xinhua Press/Corbis
“The acceptance of the Yuan into the world currency basket should offer a new possibility for us as from next year,” President Mugabe said (Dec 22). “I am happy the Ministry of Finance and the Reserve Bank Governor are looking at other strategies for reforming the banking sector and injecting liquidity into the market.”
A Johannesburg-based Iraj Abedian, chief executive of Pan-African Investment and Research Services, had the following to say in reaction to the possible Zimbabwe adoption of the Yuan as a currency.
“I don’t know of any other country that is using the Yuan as a currency, as a second currency. So it’s an interesting experiment. I am sure there’s more political misogyny than economic rationale. Mugabe is basically sending a very strong anti-Western message, and to the extent that the Chinese have committed a massive capital injection to Zimbabwe, Mugabe thinks that’s a good enough reason to send that political message.”
On Monday, Zimbabwe announced that China plans to cancel the $40 million debts the Southern African country owes it and is due to mature this year. It is no secret that there exist no cordial relationship between Zimbabwe and the countries that fit ‘Western Countries’ description. Countries such as the United States and the United Kingdom has hit Zimbabwe with various economic sanctions; something that significantly contributed to its worsening economy.
The Western Countries accuse Mugabe’s administration of conducting human rights violation among other things in Zimbabwe. As a retaliation, President Robert Mugabe is increasingly finding economically benefiting relationship with China and is thus advocating for the ‘look East policy’ not just for Zimbabwe but for all African countries.