The Strategist

Renminbi is Spreading Around the World: Zimbabwe Launches Internal RMB Transactions

12/23/2015 - 14:20

The Government of Zimbabwe introduced calculations in renminbi in the country. This way, this African country, ruled by self-perpetuating Robert Mugabe for 35 years, is hoping to further strengthen cooperation with China. After a prolonged economic crisis, hyperinflation and devaluation, the Zimbabwean authorities have refused to use its own currency, and now South African rand, euro and the US dollar circulate in the country.
Patrick Chinamasa, Zimbabwe’s Finance Minister, announced that from now on, payment transactions in the country can be performed not only in South African currency (rand) and the US dollar, but in the Chinese renminbi as well. "There’s simply no better time for this" - said the Minister. The decision was taken a few days after China has written off Zimbabwe's debt of $ 40 million. The total amount of debt of Zimbabwe to China is about $ 700 million, and the entire external debt of Zimbabwe is close to $ 10 billion. As we know, six years ago the Zimbabwe government announced cancellation of its own currency, the Zimbabwean dollar, after the economic crisis and hyperinflation of several thousand percent led to a complete devaluation of the Zimbabwean currency. Using currencies of other countries - South Africa, Botswana and the United States - for the internal calculations helped somewhat to stop inflation. However, analysts say that dependence on price of diamonds and other minerals (gold, iron ore) still keeps the economy highly vulnerable and unstable.

For several years, China has actively been cooperating with Zimbabwe, giving the country loans and selling consumer goods. In return, the African country’s authorities provide the Chinese with contracts on purchase and production of local mineral resources as well as participating in infrastructure projects. During the recent visit of Chinese leadership in Zimbabwe, Robert Mugabe persuaded Xi Jinping to write off $ 40 million of Zimbabwe's debt. According to some reports, launch of renminbi transactions in the country relates this agreement. In the first phase of this agreement, Chinese tourists in Zimbabwe will be allowed to pay in yuan. Then the authorities will use RMB to settle accounts on other debts with China. In August, some Zimbabwean experts called to actively use renminbi in calculations, so as to reduce dependence on the US dollar. According to a trade economist Gift Mugano, "if we start to use RMB, we will encourage the Chinese to do more here. In addition, RMB is increasingly used for calculations in the international arena." Dr. Mugano also noted that renminbi calculations will help reduce negative effects of US sanctions against Zimbabwe - because then, transactions of local companies will be carried out by Hong Kong financial companies, rather than through the United States, where the Administration of Foreign Assets Control of the Ministry of Finance (OFAC) often blocks payments to a number of Zimbabwean companies.   


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