Moody’s says use of yuan in Zimbabwe may lift investment

January 30, 2016, 7:31am

By MacDonald Dzirutwe, Reuters on Business Day Live
Picture: EPA/WOO HE on BDLive

HARARE — Moody’s said on Thursday that plans by Zimbabwe to increase the circulation of the Chinese yuan could lift investment from the world’s second-largest economy but may not be enough to strengthen investor confidence and improve competitiveness.

Zimbabwe abandoned its currency in 2009 after inflation reached 500-billion percent and adopted foreign currencies, anchored by the US dollar, to tame runaway consumer prices and start an economic recovery.

The US dollar is widely used, along with the rand and the finance minister and central bank governor said in December that Zimbabwe would now increase the use of the yuan.

"The renminbi’s use (is) likely (to) facilitate greater levels of foreign direct investment from and bilateral trade with China by reducing transaction costs and exchange rate risk," Moody’s said in a report on Zimbabwe.

China has in the past few years invested more than $1bn in Zimbabwe, becoming the largest investor after the southern African nation was shunned by the West over its human rights record.

Moody’s, which has never rated Zimbabwe, said widespread use of the yuan could be limited by a population that has more confidence in the US and is suspicious of other currencies after the traumatic experience with the Zimbabwe dollar.