For almost two decades, Zimbabwe has battled debilitating effects of economic sanctions imposed by Britain and her allies after the country implemented a land reform programme that has seen over 400 000 households, including opposition party members, being proud owners of prime farmland.
However, besides being ostracised for embarking on this programme, the country has also been blocked from receiving payments or settling its foreign obligations in US dollars as the US Treasury Department’s Office for Foreign Assets Control intercepted all the money destined for Zimbabwe.
The American dollar is widely used internationally given its stability and has been used as reserve currency by many countries to settle their foreign obligations.
But as global economic systems shift focus towards the East, mainly to China, there is a greater need for economic planners in many African countries, Zimbabwe included, to think outside the box and consider using the renminbi (yuan) as reserve currency.
Adoption of the renminbi as a reserve currency has many economic benefits to many African countries as it will help them repay for loans and grants from China.
It was opportune therefore that Reserve Bank of Zimbabwe Governor Dr John Mangudya, while opening the 2018 Macro-economic and Financial Management Institute of Eastern and Southern Africa (MEFMI) region deputy governors and deputy permanent secretaries forum in Harare a fortnight ago, hinted at the need for Africa to look at the possibility of including the Chinese renminbi as a reserve currency.
The institute has 14-member countries namely: Angola, Botswana, Burundi, Kenya, Lesotho, Malawi, Mozambique, Namibia, Rwanda, Swaziland, Tanzania, Uganda, Zambia and Zimbabwe engaged in considerable trade with China.
For Zimbabwe, it should not be difficult to embrace the renminbi as a reserve currency given that we have strong bilateral relations with China in which the Asian economic giant has extended billions of dollars in loans and grants in recent years.
Official figures show that in 2016 trade between the two countries amounted to $1,24 billion.
Said Dr Mangudya in the Herald Business recently; “Most countries represented here (at the forum) either have loans or grants from China and it would only make economic sense to repay in renminbi. This is the reason why it is critical for policy makers to strategise on progress that the continent has made to embrace the Chinese renminbi, which we all know has become what may be termed “common currency” in their trade with Africa.”
Zimbabwe enjoys Chinese products in form of vehicles, clothing, kitchen utensils, industrial consumables, all paid for in US dollars, while China’s currency is one of the most stable currencies on the global market.
In fact, global capital is drifting towards China due to its ease of doing business policies that have seen American companies being some of the biggest investors in the Asian state.
In an event, when Zimbabwe decides to adopt the renminbi as one of the reserve currencies, it will not be making history in the continent as there are already many African nations that have gone the same route.
Except though that it can only enter such a deal when it finally has its own official currency.
In May this year, Nigeria (Africa’s second largest economy) and China conducted a currency swap amounting to around US$2,4 billion, making trade between the two countries less reliant on the US dollar.
This is the equivalent of 15 billion renminbi or 720 billion naira and is valid for three years and renewable. In July 2012, a number of Central African apex banks were given access to yuan-denominated bonds by the China Development Bank Corporation (CDB).
The CDB, the State-owned lender and a supporter of government projects and Chinese companies looking to expand overseas, set aside part of its three-year dim sum bonds for African central banks.
It was the first time that African central banks were able to invest in yuan-denominated bonds.
Zimbabwe can move with speed to resolve its currency issue before it can adopt the renminbi given that further procrastination can only result in the country losing out on benefits attached to the deal.
It’s already acknowledged as a near-reality that China is the next economic superpower.