Talk of Chinese Yuan reserves causes hysteria in Zimbabwe, but is no big deal in Nigeria

Feb 14, 2012

The Chinese are causing consternation all over with their explosive economic growth and rising global influence. In many countries there is heated debate on the pros and cons of unavoidable relations with China. The peculiarities of recent Zimbabwean political and economic history mean that there is an almost emotional hysteria to discussion about various aspects of the country’s strong and growing links with the rising Asian giant, especially amongst critics of the relationship. An example is the frightened resistance to the idea of recognizing China’s growing global economic power and role as increasingly important trade partner of Zimbabwe’s by adopting its Yuan as the reserve currency instead of the US dollar, or merely adding it to the several foreign currencies Zimbabwe already uses to conduct the country’s business. Yet Nigeria, a far larger, cash-rich economy which actually has reserves to speak of, has quietly, with no fuss, denominated 10% of those reserves in Yuan.

Since the country’s deeply traumatic experiences of a number of years of hyperinflation, Zimbabweans have been extremely sensitive to issues to do with currency reform of any type. The one currency reform that was widely welcomed in 2009 was the suspension of the Zimbabwean dollar because of its misery-causing, life-destroying worthlessness. It’s replacement by using several foreign currencies, the principal one of which is the US dollar, ended hyperinflation overnight and brought much-needed stability back to the economy, although it brought its own problems. Many Zimbabweans are terrified of any change which might bring back economic ructions as severe as those experienced during the years of hyperinflation.

Central banker Gideon Gono suggested that Zimbabwe consider making the Yuan the reserve currency instead of the US dollar. That idea is probably vastly premature for any country, despite China’s rise. But the overwhelmingly negative response to his idea was generally not so much on the basis of any rational reasons, but the deep Zimbabwean fear of the currency unknown. Gono’s public reputation is also largely in tatters, as he presided over the era of hyperinflation as an especially high profile, interventionist central bank chief. Then there are also the mixed feelings of many Zimbabweans to China.

These discussions largely took place in isolation of what is happening in the rest of the world. Which is why the news that Nigeria, one of Africa’s biggest and fastest growing economies and its top oil exporter, will ‘will convert as much as 10 percent of its $33 billion in foreign reserves from US dollars into Chinese Yuan,’ according to reports in September 2011.

As one news report pointed out, in Nigeria's case, the up to $3.3 billion it may convert to Yuan isn’t a huge sum for the oil-rich exporter. But ‘what is enormous, economists say, is what the bank's decision says: The Yuan, pegged to the dollar managed more recently to keep Chinese exports cheap - is turning into a global reserve currency.’

That news evidently hasn’t reached most of Zimbabwe yet. But given China’s inexorable rise, and its particularly close links with Zimbabwe, it will, and soon. China’s spreading global influence is fascinating, and for some also frightening, partly because its effects on every country is simply unavoidable and does not depend on whether anybody likes its rise or not.

The choice of every country is not whether or not to engage with China, but merely how to do so. And even in that respect there is not much ‘choice’ for little, increasingly China-linked economies like Zimbabwe. Much bigger economy Nigeria has calmly, quietly accepted a reality about the coming world role of the Chinese Yuan that others, including Zimbabwe, will soon be following. The Yuan may not be about to replace the US dollar, but it is definitely going to increasingly take a place beside it.

Sorry for those who don’t like to hear or think about it, but China is the world’s new irresistible economic force.

The Zimbabwe Review


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