Wednesday, September 8, 2010

What if Zimbabwe Adopts the Chinese Yuan?

Zimbabwean Vice President Joice Mujuru seems open to the idea:

Mujuru says this would be a “natural progression and offshoot of the Look East Policy” which has seen China emerge as the country’s biggest trading partner, absorbing most of the agricultural and mineral produce.

"I don’t see why we should not use the Chinese Yuan when most of what we are producing in the country like our tobacco and minerals are ultimately being bought by the Chinese.

She said China was not only a vast market but also the world’s fastest growing economy that needs to be deliberately incorporated into Zimbabwe’s production, manufacturing and marketing matrix.

Maybe the economists among us can better parse the details of this, but from my haven't-taken-economics-since-sophomore-year-college perspective, it is not the changing of currency that makes this a bad idea. Some have argued that the reason Germany is doing so well is that the Euro was down against the dollar for much of the early part of the year, which drove down prices and strengthened their GDP growth through trade (The Economist has a few quibbles with this theory, mind you). The Chinese currency is pegged low relative to the U.S. Dollar or Euro right now and, holding constant the possibility of further shocks to the Zimbabwean economy -- Mozambique-style food riots, droughts, a bad harvest, a more extensive ban on Zimbabwean minerals -- I can see a situation where it's not totally hare-brained for Zimbabwe to peg its currency to the Chinese Yuan. The only question I have is this: Why the yuan? Why not a currency of one of their Southern African neighbors? From their shift on Sudan, China has shown that it can be shamed, so it's not clear if China would even go for that with a country that's not in most of the world's good graces.

I'm trying to engage the idea on a policy level, but I don't see what the Chinese would gain from this that they don't already have from a political and economic standpoint. Mujuru must know this too, and it is this complete lack of feasibility and ability to think clearly on policy issues that is truly scary. Nowhere is it shown that the Vice President even thought to put the shoe on the other foot and think this issue through in a manner that betrays that this VP understands issues that affect the country's economic future. The changing of one's currency to another is a serious economic decision and has widespread ramifications for trade and food prices, among other things. And all Mujuru can come up with is some drivel about a "Look East policy".

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