by Annika Backe
February 18, 2016 – For years, Zimbabwe is struggling with debts and runaway inflation. Six months ago, the central bank has phased out the Zimbabwean dollar after it had become virtually worthless due to a hyperinflation.
This 100 trillion Zimbabwean dollar note from 2008, released into circulation in January 2009, is just enough to buy a weekly pass for public transport.
As a countermeasure, 12 zeros of the local currency were cut off with a scratch of a pen and bank accounts were converted into US dollar. Largely replaced by the US dollar and the South African rand, the local dollar has ceased to be used as currency in public transactions.
Now China appears on the scene. The Asian great power intends to strengthen its presence on the African continent. China having become one of the most important trading partners of Zimbabwe, its currency already circulates in the whole country. In October 2016, the Chinese yuan – or remimbi – will be adopted as the third official legal tender in Zimbabwe. China will cancel debts equivalent to about 37 million euros. Not too shabby considering that Zimbabwe’s gross domestic product amounts to approximately 12 billion euros only.
Robert Mugabe, President of Zimbabwe. Photograph: Kremlin.ru / https://creativecommons.org/licenses/by/4.0/deed.en
For the Chinese this is a very good deal. Yet the President of Zimbabwe, Robert Mugabe, is also highly pleased, hoping that his country will benefit from a more stable monetary policy and a boost for economy as a result. After all, he is responsible for Zimbabwe’s low economic performance. His controversial land reform has proved detrimental to agriculture. And his human rights violations have provoked countless economic sanctions against Zimbabwe.
A dictator in Africa, consorting with a government in Beijing that is under heavy fire (not only) for of its own human rights abuses… Well, some say friendship and money don’t mix. Others believe money to generate friendship.
The yuan expanding its influence is commented on in this blog entry entitled Kung Fu Panda’s secret – a reserve currency.