Zimbabwe to legalise use of Chinese yuan in its economy

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Chinese President Xi Jinping talks with Zimbabwean President Robert Mugabe on arrival for a state visit in Harare, Zimbabwe December 1, 2015. Reuters/Philimon Bulawayo

Zimbabwe announced on Monday that it will be increasing the use of Chinese yuan in its economy after Beijing confirmed the cancellation of its US$40 million (approx. AU$56 million) debt. China is the largest investor in Zimbabwe after the west decided to abandon it over its human rights record. The country has been trying to recover from its 1999-2008 recession phase, which led it to give up its own currency in 2009.

“They [China] said they are cancelling our debts that are maturing this year and we are in the process of finalising the debt instruments and calculating the debts,” Zimbabwean Finance Minister Patrick Chinamasa said in a statement.

Zimbabwe has received more than US$1 billion (approx. AU$1.38 billion) over the last five years from China in low interest loans. China, besides being the largest investor, is the second largest trading partner of the country after South Africa.

After the country was forced to ditch its own currency following the long standing recession, it started using a number of foreign currencies including US dollar and South African rand. Yuan was included amongst the foreign currencies later, but it did not receive approval for public transactions.

Chinamasa said that yuan will be used from now onwards as a part of trade relations with China and will be subject to acceptability by customers in Zimbabwe. The minister added that the central bank chief of Zimbabwe, John Mangudya, carried out all the negotiations with the People’s Bank of China to see whether the usage of yuan can be increased.

Chinese President Xi Jinping visited Zimbabwe in early December and signed a series of agreements aimed at upgrading and strengthening Zimbabwe’s infrastructure. The agreements included a US$1 billion (approx. AU$1.38 billion) loan for the expansion of Zimbabwe’s largest thermal power plant.

Chinamasa said that Chinese tourists to the country will be able to pay for services in yuan and the country’s loan to China could be paid off in yuan as well.

"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," Reuters quoted Chinamasa as saying.

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