Yuan adoption to ease liquidity crisis says Oxford research firm

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THE Reserve Bank of Zimbabwe’s decision to officially include the Chinese yuan as a reserve currency could improve liquidity in the country, a South African based research firm has said, but noted Beijing stood to gain more from the arrangement.
NKC African Economics, an Oxford Economics company said in a research note released this week that the yuan’s new status as a reserve currency implies that it will be held in the vaults of the central bank and will be made available for international payments, though not for the public.
“Moreover, the ‘seal of approval’ by the International Monetary Fund (IMF) to add the yuan to its basket of reserve currencies in December last year will improve business confidence in dealing with the Chinese currency,” said NKC.
Zimbabwe  abandoned its local currency in 2009 after it was ravaged by inflation in favour of multi-currency system but has continually faced liquidity problems.
The Chinese currency has been a legal tender in the country’s multi-currency system for two years but was not available for market transactions.
Finance minister Patrick Chinamasa said in December that Zimbabwe will officially implement the Chinese yuan as a reserve currency of the central bank  after China agreed to cancel Harare’s $40 million debt.
As a reciprocal gesture, Zimbabwe will use the Chinese yuan in international payments to China, thus improving bilateral trade between the two countries.
However, NKC African Economics believes China has more to gain from the deal than the troubled southern African country.
“While improved business relations with China and the possibility of debt relief are positive developments for Zimbabwe, all may not be what it seems regarding the Asian giant. China is a good friend, that is not at issue, but Beijing also has its own agenda, its own needs, and its own wants – of which friendship is just one aspect,” NKC added.Advertisement