Charity Dhliwayo, the acting governor of the Reserve Bank of Zimbabwe announced that Zimbabwe’s central bank would accept the Chinese yuan and two other Asian currencies as legal tender. Dhliwayo said, “Trade and investment ties between Zimbabwe, China, India, and Japan have grown appreciably”. Zimbabwe had to abandon their currency after their economy became rife with inflation in 2009.
However, an independent economist Chris Mugaga said that the introduction of the Asian currencies would not make a huge difference in Zimbabwe’s struggling economy. Mugaga goes on to say that Zimbabwe is adopting a “Look East Policy” after economic relations with the West has come under strain. Over the past couple decades, Chinese investors have entered into diamond mining, construction and retail sectors in Zimbabwe.
How does this relate to Helvey’s blog post about the US and China competing for influence in Africa? How important is Zimbabwe, economically speaking, relative to the region? Given China’s extractive methods of trading with Zimbabwe (e.g. buying mining rights far under market value by bribing officials), is this a positive or negative development, in terms of Pareto optimality?
Thank you for all of your questions Asher, they are really thought inspiring and substantive. But I do believe that Zimbabwe and all of Africa has some importance economically. There are countries fighting over the right to do business here so obviously there is importance. The answer is most likely in mining and natural resources but I guess only time will tell.
Zimbabwe is one of the tragedies of the post-colonial era: a country that was prosperous, at least in relative terms, but over the past 20 years slid into hyperinflation that destroyed the last vestiges of the market economy, leaving teachers and others dependent on government salaries to starve and the rest of the economy to revert to barter and subsistence agriculture. Recognizing other currencies as legal tender? Huh? No one accepts the Zibabwean currency except under duress, so the only “money” that is in use is that of other countries. Since the government can’t at present raise taxes, it has no ready way to get its hands on such currencies. Look East is being met by Look Askance.
It seems like Zimbabwe is trying to set up closed economic times with the East Asian countries. India, China, and Japan all have strong economies and play as important roles in the global economy. By adopting these countries’ currencies, Zimbabwe takes a big step towards joining the global economy.
This also means if there is a problem with Zimbabwe currency, then the country can use other currencies as back-up currencies until the problem (such as inflation, etc.) is fixed, which is very smart.