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Zimbabwe adds China's yuan to currency basket

Updated: 2014-03-04 07:58
By Xu Lingui and Tafara Mugwara ( China Daily)

African nation's move to adopt it as legal tender will improve relations, report Xu Lingui and Tafara Mugwara in Harare, Zimbabwe

American greenback or Chinese yuan?

Zimbabweans are now being given more options as to which currency they would prefer to put in their pockets.

The southern African country, which lacks its own currency at the moment, has allowed nine of the world's major currencies to trade as legal tender since January.

Along with the Japanese yen, Indian rupee and Australian dollar, the Chinese yuan in January was officially added to the basket of currencies accepted as legal tender in Zimbabwe.

Acting central bank governor Charity Dhliwayo, who made the announcement, said it was done because trade and investment ties between Zimbabwe and China, India, Japan and Australia have grown appreciably.

Dhliwayo said individuals and businesses can now open bank accounts denominated in the four new currencies, as well as in the Botswana pula, British pound, South African rand and US dollar.

As to which currency will dominate, at least in the near future, market analysts are putting their bets on the US dollar, which most Zimbabweans have been using since 2009. But as trade and economic interaction with China grow, the yuan is emerging as a likely challenger.

Zimbabwe abandoned its currency in 2009, after hyperinflation rendered it worthless, and it adopted a multi-currency system.

But four years on, prices across the country are almost all denominated in the greenback, with the rand and pula used for amounts smaller than a dollar.

The pound and euro are rarely seen.

Dhliwayo confirmed that the government, led by veteran President Robert Mugabe, has made it clear that rumors of a widespread "speculated" re-introduction of the Zimbabwean dollar can be "put to rest".

John Robertson, an independent economic analyst, said the four new currencies are likely to meet a fate similar to the pound and euro. He also refuted talk that adding the currencies will solve the severe liquidity crunch Zimbabwe faces.

"The additional currencies that can now be officially used in Zimbabwe will not make the slightest difference," Robertson said. "We price our exports in the US dollar, we price our imports in either the US dollar or rand, and the additional currencies on the list won't affect the quantities of money flowing either way."

Of the four new currencies, people have responded more to the Chinese yuan than the others probably since "made in China" products flourish in the Zimbabwean market.

Some banks - such as Botswana-based BancABC and Stanbic, a division of Standard Bank headquartered in South Africa - already have launched yuan services, while British multinational banks Standard Chartered Bank Ltd and Barclays Plc said they hadn't officially received a directive from the central bank.

Economist and University of Zimbabwe lecturer Edgar Muhoyi said that with the recent move, China will transact more easily with Zimbabwe than before.

Trade between China and Zimbabwe has grown by more than $1 billion annually over the past two years. And since 2009, China has been Zimbabwe's biggest source of foreign investment. Chinese investments cover a range of sectors, from mining and manufacturing to agriculture and social services.

"Now, with the Look East policy, we are much more involved in transactions with China compared with the rest of the world. The yuan may even beat the US dollar in the market, "Muhoyi said.

He said the preferred currency is sure to be the most stable one but that it also will depend on the transactions being made.

A seller of electronic gadgets, who identified himself as Popula, said he welcomed the central bank's move since he buys most of his goods from China.

"I think that the addition of the Chinese yuan in the basket will make transactions easier than before since we no longer need to convert the money first," he said.

But some foreign exchange dealers and retailers were caught off guard by the central bank's move, and they voiced concerns that with added currencies, transactions will become increasingly tedious and time-consuming.

There were no signs yet of Chinese notes flooding into the market. In shops, people still seemed to be getting their change in rands, credit notes, phone top-up cards, candy and Popsicles.

"We are already having trouble exchanging the US dollar and the rand in shops," said Gladys Ruziviso, a saleswoman at a chain store in Harare. "Now we have Chinese and Indian money. It means we have to make calculations every time we serve a customer.

"Customers don't like to make conversions and will not be happy to receive change in currencies other than the rand," she added.

Russel Mutyambizi, a foreign currency dealer, said he feared that people might be fooled by counterfeit notes, as most Zimbabweans, including money traders, are not familiar with the new currencies.

"How many Zimbabweans can differentiate a fake yuan from an original one?" he asked.

Xinhua News Agency

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