The Chinese yuan is continuing to grow in popularity, as Zimbabwe has announced that the currency will soon be adopted as legal tender in the country. The announcement from Zimbabwe comes after China canceled $40 million in debt from the country earlier this week.
China is the largest trading partner of Zimbabwe, and the Chinese government is regularly praised by the African country. Zimbabwe has often turned to China and other Eastern World Powers after being restricted by Western sanctions for decades.
The decision by Zimbabwe to adopt the yuan is more than just a political statement. It also shows the large amount of economic influence that China has in Africa. China has invested heavily into the continent, quickly becoming the largest trading partner of many African countries.
In 2009, Zimbabwe abandoned its own currency after it experienced a highly troubling amount of hyperinflation. At one point, banknotes were printing denominations of 100 trillion Zimbabwean dollars.
However, even this amount of Zimbabwean currency could barely afford to purchase a bus ticket. The country adopted the United States dollar and the South African rand to stabilize the inflation and boost the economy.
While the United States dollar will most likely remain the most heavily traded currency in Zimbabwe, the yuan is expected to become a popular alternative. It should be particularly popular among Chinese tourists and traders.
According to Zimbabwean Finance Minister Patrick Chinamasa, the usage of the yuan will be dependent upon trade that takes place between Zimbabwe and China. He believes that now is the perfect time to start using the yuan.
Chinamasa said in a statement, “There cannot be a better time to do this. It is now about looking at the modalities, specific sectors and how it can be done.”
Meanwhile, Zimbabwean President Robert Mugabe applauded the move, saying that it would inject liquidity into the country’s financial markets. The Governor of the Zimbabwean Central Bank John Mangudya added that the introduction of the yuan would minimize exchange-rate losses when trade is conducted between Zimbabwe and China.
Earlier this month, Chinese President Xi Jinping was provided with an extremely warm welcome when visiting the country. The Chinese President announced that China would be providing Zimbabwe with a $1 billion loan to cover the expansion of a power plant.
Over the past five years, Zimbabwe has reportedly received more than $1 billion in low-interest loans from China. This does include the loan for the power plant expansion.
At the China-Africa Summit in Johannesburg, South Africa, President Jinping announced $60 billion in newly created credit and financing for the African continent.
Last month, the International Monetary Fund announced that it would start including the Chinese yuan in its benchmark currency.