Africa Economy: Chinese yuan's internationalization good news to Zimbabwe: analysts

Already, Chinese currency yuan was given the legal status to circulate in Zimbabwe, where there has been no local currency since its demobilization amid hyper-inflation six years ago.

But the notes bearing China's founder Chairman Mao Zedong are rarely seen in the market, along with seven other legal tender foreign currencies in Zimbabwe. The sole dominating currency is the American greenback.

For a country that has been placed under U.S. sanctions for more than a decade, the development of a competitive alternative is much welcomed.

Zimbabwean economic commentators said Chinese yuan's internationalization, a lengthy process whose latest development include establishing an international payment system to joining International Monetary Fund (IMF)'s Special Drawing Right basket.

"It's a commendable move on the part of the Chinese," said Zimbabwe Investment Authority chairman and former bank owner Nigel Chanakira. "We now have a rival currency in a sense to the U.S. dollar."

He said that the latest introduced China International Payment System (CIPS) will help Zimbabwe to circumvent U.S. financial sanctions.

Yuan payments in cross border trade, direct investments, financing and personal remittances are accepted under the system.

Chanakira said several Zimbabwean firms have had their money seized by the United Sates Office of Foreign Assets Control as part of America's sanctions regime in place since 2001.

The U.S. Treasury Department has over the years intercepted payments running into millions of dollars due to Zimbabwean firms as part of its economic sanctions, analysts say.

"There are no sanctions with China and those banks that are affected by the U.S. sanctions can open direct currency trading accounts with Chinese banks without any upheavals or risk that their money can be seized," Chanakira said.

Former president of the Confederation of Zimbabwe Industries Charles Msipa hailed the yuan's internaitonalization, saying it will help democratize the global financial payment system.

"It's a good and welcome development that will help balance the world financial system," he said.

Observers say there are only a few Zimbabwean banks holding direct currency accounts with Chinese banks but this is likely to change.

China's ratio of global trade is significant and it was unnecessary for countries to go through third party currencies, Chanakira said, the cost of trade will be reduced significantly by direct yuan payments.

The amount of trade between Zimbabwe and China is sufficient to merit the reduction in trading costs. According to Chinese official source, annual bilateral trade between Zimbabwe and China has risen from 500 million U.S. dollars in 2010 to 1.24 billion U.S. dollars in 2014, with Zimbabwe maintaining trade surplus with since 2011.

Chinese Foreign Direct Investment into Zimbabwe has also jumped from 460 million dollars in 2011 to 601 million dollars in 2013.

The introduction of the CIPS was therefore expected to allay any exchange risk fears by Zimbabweans and spur yuan transactions between Chinese and Zimbabwean business people, Chanakira said. Enditem