Zimbabwe adds China's yuan to currency basket

African nation's move to adopt it as legal tender will improve relations, report Xu Lingui and Tafara Mugwara in Harare, Zimbabwe

American greenback or Chinese yuan?

Zimbabweans are now being given more options as to which currency they would prefer to put in their pockets.

The southern African country, which lacks its own currency at the moment, has allowed nine of the world's major currencies to trade as legal tender since January.

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Along with the Japanese yen, Indian rupee and Australian dollar, the Chinese yuan in January was officially added to the basket of currencies accepted as legal tender in Zimbabwe.

Acting central bank governor Charity Dhliwayo, who made the announcement, said it was done because trade and investment ties between Zimbabwe and China, India, Japan and Australia have grown appreciably.

Dhliwayo said individuals and businesses can now open bank accounts denominated in the four new currencies, as well as in the Botswana pula, British pound, South African rand and US dollar.

As to which currency will dominate, at least in the near future, market analysts are putting their bets on the US dollar, which most Zimbabweans have been using since 2009. But as trade and economic interaction with China grow, the yuan is emerging as a likely challenger.

Zimbabwe abandoned its currency in 2009, after hyperinflation rendered it worthless, and it adopted a multi-currency system.

But four years on, prices across the country are almost all denominated in the greenback, with the rand and pula used for amounts smaller than a dollar.

The pound and euro are rarely seen.

Dhliwayo confirmed that the government, led by veteran President Robert Mugabe, has made it clear that rumors of a widespread "speculated" re-introduction of the Zimbabwean dollar can be "put to rest".

John Robertson, an independent economic analyst, said the four new currencies are likely to meet a fate similar to the pound and euro. He also refuted talk that adding the currencies will solve the severe liquidity crunch Zimbabwe faces.

"The additional currencies that can now be officially used in Zimbabwe will not make the slightest difference," Robertson said. "We price our exports in the US dollar, we price our imports in either the US dollar or rand, and the additional currencies on the list won't affect the quantities of money flowing either way."

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