Zimbabwe adopted yuan as a second currency and got $40 million dollar debt cancelled

Zimbabwe adopted yuan as a second currency and got $40 million dollar debt cancelled

Zimbabwe has adopted a third official currency – the Chinese yuan. At the same time, China has agreed to increase its investments in Zimbabwe.

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Zimbabwe has adopted a third official currency – the Chinese yuan. At the same time, China has agreed to increase its investments in Zimbabwe.

China is an important trade partner for Zimbabwe, and many transactions have already used yuan.

Zimbabwe has permitted use of the U.S. dollar and the South African Rand since 2009. It stopped using its own currency in 2009, after an enormous inflation that supassed one billion percent. As a result, one US dollar was worth 35 billion Zimbabwean dollars.

Yuanisation on the rise

The sanctions of USA and Europe imposed on Zimbabwe in the beginning of 2000s are one of the reasons why China has become so important for the country. Hundreds of politicians, including the president Mugabe and his wife Grace, as well as numerous companies are banned from opening banking accounts in US and Europe.

Zimbabwe is not the only country in the world to adopt foreign currency. This is a typical solution for crisis- and inflation-affected countries. For example, many central American countries such as Haiti, El Salvador, Ecuador use the U.S. dollar as their national currency as do Somalia, Liberia and Lebanon.

After the International Money Fund recognised yuan as the fifth world currency in the end of November, experts predict the beginning of ’’yuanisation“. In a statement, IMF said that from October 1, 2016, Chinese Yuan will be freely usable, and join the U.S. dollar, Euro, British pound and Yen in the basket of world currencies. This step is a recognition of ’’the progress that the Chinese authorities have made in the past years in reforming China’s monetary and financial systems” IMF Director Christine Lagarde said.

China increases investment into infrastructure

China agreed to cancel Zimbabwe’s debt of $40 million dollar during the recent visit of President Xi Jinping. At the same time, two countries agreed to a loan of more than $1 billion to fund the expansion of Hwange coal power station in western Zimbabwe. In October 2014, China’s Sinohydro Corp won the $1.5 billion bid to construct two generation plants, and if implemented, it would give Zimbabwe additional capacity of 600 megawatt (MW).

The loan will be provided by China’s Import and Export Bank. Interest, bank charges and down payment for the project would cost the state-owned Hwange station about $325 million.

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