Zimbabwe, world: start preparing for a Chinese yuan in your future

Dec 15, 2011

With China’s dramatic economic rise and spreading global influence, there are increasing discussions about how its currency, the yuan. will influence world financial markets and trade. In Zimbabwe, where the local currency was abandoned to kill hyperinflation and replaced with a multi-currency regime, proposals by some to add the yuan have been met with surprising heat and emotion.
Among prominent voices to suggest that the yuan be added to Zimbabwe’s ‘basket’ of currencies used

as official tender is that of vice president Joice Mujuru. Reserve Bank of Zimbabwe governor Gideon Gono has gone as far as to suggest that the yuan replace the US dollar as the country’s reserve currency (presumably when Zimbabwe gets back to having any reserves at all) while making steps to again having its own currency.

Gono’s argument: "With the continuous firming of the Chinese yuan, the US dollar is fast ceasing to be the world's reserve currency and the Euro-zone debt crisis has made things even worse. As a country, we still have the opportunity to avoid being caught napping by adopting the Chinese yuan.”

The general reaction locally as well as abroad was to initially dismiss these suggestions as almost comical. Gono, in particular, will for a very long time carry around his neck the albatross of his opinion on any serious subject being automatically dismissed as being suspect because he presided over the era of hyperinflation.

So there was, and still is, some carping in some quarters about how much an idea like this from a state that is not associated with financial probity is worth. Some Americans in particular have reacted to the idea of the yuan replacing the dollar as a reserve currency with jingoistic offense. “Who the hell do those %$^&* Zimbabweans think they are to insult us like that” has been the gist of the response of some.

Locally, Zimbabwe Independent columnist Eric Bloch pointed out, amongst other reasons for disagreeing with Gono, that the Chinese themselves do not use the yuan in trade, but the US dollar, like most of the world.

It is too early in China’s rise for the yuan to be thought of as replacement of the dollar. And it may be premature to begin to write off the US as the world’s pre-eminent economy, which is the effect of dismissing the dollar as Gono seems to do. But neither are Gono’s points at all invalid.

For the first time, it is possible to begin to contemplate a not too distant future in which the yuan may indeed feature more prominently in global trade. If Gono’s suggestion for it to replace the dollar’s role in Zimbabwe is too extreme, Mujuru’s more modest idea that the yuan be added to the several currencies in use in Zimbabwe may soon become not so far-fetched.

As Mujuru pointed out, China has become Zimbabwe’s main trading partner, a situation that is not going to be reversed any time soon. In neighboring Zambia, where China is also heavily invested, a Chinese bank does transactions in yuan, both in recognition of the number of Chinese there, as well as the exploding trade between the two countries. Just a few years ago the idea would have been unthinkable. It is a small step, but one that is pregnant with symbolism for the future.

Whether in Zimbabwe or anywhere else, the preeminence of the US dollar is not immediately threatened. But it is also safe to predict that the yuan is going to increasingly feature in the kind of discussion that Gono and Mujuru have started, and that is not only taking place in Zimbabwe.

With China now being the biggest creditor of the US, and having large US dollar reserves, the yuan is already ‘silently’ and indirectly enjoying the benefits of this new economic reality. Just as Gono wishes Zimbabwe to have its own currency again, China will likely increasingly want its currency to play a more prominent and direct role in world trade. It is arguably for the first time, or soon will be, in a position to have that happen, and will find opinion-makers in countries like Zambia, Zimbabwe and many others who are receptive to the idea.

In this particular case, Gono and Mujuru are probably ahead of their time. Despite its bad current official relations with the West, Zimbabwe is psychologically deeply in the orbit of Western influence. That China has burst onto the Zimbabwean economic scene with many beneficial results is accepted, but there is also still deep unease because of its relative ‘strangeness’ compared to the West that Zimbabweans are so familiar with in so many respects.

Therefore for some, the idea of ‘abandoning’ the old familiar American dollar and giving even a partial role for the yuan is a disturbing move away from the comfortable known. It represents a further step towards the relative ‘unknown’ and unfamiliar (even frightening for some) new reality of a powerful, newly assertive, ‘strange’ but impossible-to-ignore China.

Ten or 20 years from now, elements of what Gono, Mujuru and many others all over the world are suggesting now about the yuan, to shocked consternation from some, would have become largely accepted reality.

The US dollar, in Zimbabwe or anywhere else in the world will remain king for the foreseeable future. But it will not be possible to ignore a growing role for the yuan as well, especially for countries that do so much of their trade with China.

Part of the negative response to the call for the increasing acceptance of the yuan is purely emotional. In Zimbabwe, as in many other parts of the world, there are many people who are finding the explosive new reality of a powerful, unavoidable China occupying part of the space that has previously been solely taken up by the West very difficult to adjust to. But adjust to this new global reality we all must and will. Whether we ‘like’ it or not is almost irrelevant.

Zimbabwe, world; start getting mentally ready, the yuan is increasingly going to be in your future.

The Zimbabwe Review


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