Zimbabwe Grants Chinese Yuan Official Currency Status.
China forgives $40 Million in debt in exchange for official currency status for the Yuan.
During the famous Zimbabwe hyperinflation of the mid 2000’s, residents of that nation survived by abandoning their nation’s currency and engaging in barter and using U.S. Dollars and South African Rand. In a new deal reported in Reuters, Zimbabwe will recognize the Chinese Yuan (Renminbi) as an official currency. In exchange, China will forgive $40 million of the over $1 billion in loans it has made to Zimbabwe.
China has invested heavily in Zimbabwe and recently loaned $1 billion to help Zimbabwe to build a thermal power plant.
Under the agreement, Chinese tourist can use their Yuan to pay for hotels and services in the country and Zimbabwe can use those Yuan to pay China back for the loans that it has extended. Since the Zimbabwe government will be using Yuan to pay its Chinese debts, we expect the Yuan to gain acceptance among Zimbabwe residents as a day to day currency.
Zimbabwe announced this past summer that it would be phasing out the Zimbabwe dollar and many thought that the U.S. dollar would get the nod as the country’s official currency. The Zimbabwe/Chinese Yuan deal highlights that the dollar isn’t the only currrency in town.
While the Zimbabwe dollar became nearly worthless years ago, it has stablized and risen from its small base against gold the past two years.
Gold vs. the Zimbabwe Dollar
Gold vs. the Chinese Yuan
Gold valued in Yuan may soon be the way the world prices gold.
China, the United States, Europe, Africa and the rest of the world
China has large trade account surplusses with the United State and Europe and has been integrating with the West’s economic systems. The deal with Zimbabwe comes soon after the announcement that China will be admitted to the International Monetary Fund’s Strategic Drawing Rights (SDRs) basket of currencies.
China has also been developing trade with countries outside the western countries’ sphere of influence, like Russia, Brazil and others. China has accumulated over $1.3 trillion U.S. Treasury bonds and has begun to slowly sell off some of its holdings as it diversifies/de-dollarizes some of it assets and reserves into projects in Africa and into gold.
China continues to grow its gold reserves:
China has had active gold mining operations in Africa for years, some legal, others illegal.
China has plans to invest a trillion dollars in Africa over the next decade and we expect China to continue to develop trade with African nations and to see the Chinese Yuan gain increasing acceptance on the continent.
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