The Sunday Mail
Dr John Mangudya
The Chinese currency, the renminbi, is part of our multi-currency system. This was made official in 2014 and confirmed in the Monetary Policy Statement of that year.
After the announcement of intention to adopt this currency, it was up to the market to decide and take it up.
So, it was not enough to just make an announcement because its usage would need to be determined by a number of factors, chief of which is the actual use by the market.
The uptake of this currency is so low.
Given the high level of trade and investment between China and Zimbabwe, and also the fact that China is the second largest economy in the world and the largest consumer of world commodities, it is desirable for Zimbabwe to ensure that the RMB is tradable within the multi-currency system.
We are saying, “How best can this be done?”
Therefore, we are having talks as the Reserve Bank of Zimbabwe and People’s Bank of China, and are investigating how best to promote usage of the RMB here.
One of the ways to do so is via a Yuan Bond.
The question is how this bond will be serviced and the answer is that we need production.
This is because a bond has to have underlying trade and investment to promote and sustain the bond.
So, as Zimbabweans, we need to produce more goods that we export to China so that we can be paid either in RMB or vice versa.
There are also what we call bilateral payment arrangements.
This is where payments between the two countries are paid in certain currencies so that we promote usage of the currency in Zimbabwe for trading purposes, while also using the US dollar.
The bottom line is Zimbabwe will need to produce goods and services, and then get investment from China, benefiting from these bilateral payment arrangements so as to increase usage of the Chinese currency.
There is no system in place right now when it comes to using the Chinese currency.
For example, someone who is coming from China to Zimbabwe is doing so with their investment in US dollars not RMBs.
Even our exports to China are pegged in US dollar terms. Even the contracts that we signed were in US dollars.
Deliberations with our colleagues from China focus on how we can put in place a new system to promote trade.
This is not new as China has bilateral payment arrangements with many countries such as the United Kingdom, South Africa and Ghana.
In fact, there are more than 28 countries in the world which have such arrangements with China.
The only issue with Zimbabwe is that we don’t have our own currency, so we cannot swap with our own currency.
And because we don’t have our own currency, we have to think away from the normal course of bilateral payment arrangements.
The issue then is how we contextualise such financial cooperation within the multi-currency system, which Zimbabwe adopted in 2009. The issue, therefore, is: Do we have a tradable product in Zimbabwe apart from tobacco? The answer is: No!
China is the biggest consumer in the world, so if we are to be serious, we have to increase production and that will make it easy for their money to flow into the country.
Our emphasis should be on production if we want any system of currency to work. Our challenge is not a currency phenomenon, but a production phenomenon. Once we sort out production, we will be fine. You need production to anchor the currency.
The fundamental challenges that were still in the Zimbabwe Dollar era are still there, hence, we need to exorcise that demon first of not wanting to work and produce.
What the IMF means is that under their basket of currencies, they have included the RMB. This means we can settle our arrears through this currency. An exporter from Zimbabwe has a choice to ask for the RMB or US dollar. But a present, if they get the RMB, what will they do with?
Nothing; because there is no system in place. Once we have the system in place, we will have traders who will actually be prepared to receive the RMB.
Money is used as a medium of exchange to exchange goods and services, investment and trade. So, you need to have more products, more tobacco, more gold, more chrome to export so that we exchange with China.
I am confident that the modalities that we are working on, as the People’s Bank of China and the RBZ, will yield positive results.
Next year, we should transform economy; we should have a productive economy, not a consumptive economy.
We have a short-term living economy – we want to have a long-term haul.
In essence, production is the cornerstone for any currency development, whether it is the RMB, or any other currency.
This is the backbone for any currency system to be able to be sustainable. Production is the pillar of a currency.
Anything that we do with the People’s Bank of China has to be supported by increased production. The buzzwords, therefore, are production, competitiveness and discipline.
◆ Dr John Mangudya is the Governor of the Reserve Bank of Zimbabwe. He was speaking to The Sunday Mail Chief Reporter Kuda Bwititi.
