Currency Wars: Zimbabwe Adopts the Chinese Yuan

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According to the Guardian (and Al Jazeera, the Canadian Broadcasting Corporation, the Globe and Mail, the Australian Broadcasting Corporation and the New Zealand Herald), the US dollar took another major hit this week after Zimbabwe has made the Chinese yuan legal tender. According to minister of finance Patrick Chinamasa, the move comes after President Xi Jinping cancelled $40 million of Zimbabwean debt that comes due in 2015.

Zimbabwe abandoned its own dollar in 2009 after hyperinflation, which peaked at around 500 billion percent, made it unusable.

Following the demise of the Zimbabwean dollar, the country did business in various foreign currencies, including the US dollar, the South African rand and eventually the yuan. However up until now, most business was conducted in US dollars, and the yuan wasn’t approved for public transactions.

China is Zimbabwe’s biggest trading partner following Zimbabwe’s isolation by its former western trading partners over the country’s poor human rights record.

Deliberate Censorship

This story has been widely reported outside the US, but seems to have been blacked out in the US media. Reporting bad news at this time of year is too likely to disrupt the mindless consumption and debt accumulation expected of Americans over the holiday season.

In the corridors of power, there are deep concerns about the continued stability of the US dollar in the face of America’s decrepit manufacturing base and soaring deficits. Over the past decade, the Obama administration has been particularly concerned about growing Chinese investment in Africa. According to the Financial Times, China is the largest investor in African infrastructure, representing an estimated $13.4 billion in 2013.

Analysts across the political spectrum increasingly view Obama’s misguided foreign policy (his threats against Russian and China, his deranged Middle East military policy and his desperate attempt to ram the Transpacific Partnership* through Congress) as a desperate attempt to shore up the dollar against massive Chinese economic gains.

True to form, the Obama administration has addressed these concerns with military force, involving US troops in a series of African wars that they’re trying to conceal from the American public. See The War in Africa the US Military Won’t Admit It’s Fighting

 

*The Transpacific Partnership (TPP) is a so-called “trade agreement” seeking to isolate China from its Asian-Pacific trading partners – by deliberately excluding China from the treaty.

Photo credit: Wikimedia Commons

 

23 thoughts on “Currency Wars: Zimbabwe Adopts the Chinese Yuan”

  1. “In the corridors of power, there are deep concerns about the continued stability of the US dollar in the face of America’s decrepit manufacturing base and soaring deficits. Over the past decade, the Obama administration has been particularly concerned about growing Chinese investment in Africa.”

    The US has completed what it was created to do, over the last two hundred years, and now it’s evidently time for it to crumble to pieces.

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  2. The GDP of Zimbabwe is a little over $13 billion, that is about a third of the smallest U.S. state, Rhode Island. It is laughable to suggest that the dollar was majorly impacted by Zimbabwe’s abandonment for the Yuan. However, the dollar, which is close to both its yearly and longer term (e.g., 10 yer) high is in a precarious bubble. This is a big factor in the commodity crash. A bigger concern for the U.S. than Zimbabwe is that China is the biggest investor in resource rich Africa. Also, the recent pricing of energy contracts between China and Russia in Yuan could signal that the dollar is in its last days as the world’s singular reserve currency.

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    • PeaceFrog, I think it’s the context here that’s important. It’s my impression that the ruling elite is less concerned about the size of Zimbabwe’s economy than the possibility they will set an example for other African countries. And I assume they are concerned since they more or less censored the story.

      Ever since Nixon made the US dollar a fiat currency, there has been an ironclad rule that countries involved in international trade (especially in oil) buy and sell in US dollars. And leaders who broke that rule (like Saddam Hussein when he set up scheme to sell oil in euros) could expect to be assassinated, removed by CIA coups or invaded. Many analysts attribute the major war mongering against Iran to their decision to sell oil in euros – and later in rubles and yuan.

      With no gold or silver backing the US dollar, this pressure that oil and other commodities be traded in dollars forced all exporting countries to keep major dollar reserves has been the only thing propping up the value of the US dollar. The stakes here are huge – if the dollar collapses, the US economy also goes down the drain.

      There are even rumors going around that the current prosecution of IMF head Christine Lagarde relates to her decision to include the yuan in the “basket” of official IMF currencies.

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      • I think you’re right about the U.S. worrying about the trend away from the dollar, and its political implications. I do not know if you have been following commodities, but there has been a collapse in them over the past couple of years. Part of this is the China slowdown. Part of this has been the unwinding of QE and ending of zero interest rates by the Fed. The last crash of 2008 was preceded by a sharp decline in commodities a couple of months before the stock market began to crash. By ending QE and zero interest rates the fed is propping up the dollar. This is catching up with multinationals with their exports and earnings trending down. I think in the next 2 or 3 years we will see a major U.S. stock market correction and another commodities boom about a year later. I.E., deja vu all over again.

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      • Yes, the American dollar as the world’s reserve currency is propped up by one thing alone, the American military (and it might be added that all national currencies are likewise propped up, at bottom, by a monopoly over the means of violence, over police and military functions).

        Therefore, the only thing that can possibly undermine America’s economic pre-eminence is the emergence of a military alliance sufficiently powerful to stare down American terror. That seems to be emerging through the Russian and Chinese alliance and as here indicated by Zimbabwe migrating to the Yuan.

        As for the fluctuations in interest rates and the relative values of currencies, all of this is but a means of expropriating real world assets.

        When interest rates are lowered by decree, debt surges; and when the rates are subsequently raised at the moment believed to be most propitious, bankruptcies ensue and real world assets, which were secured debt collateral, are forfeited.

        Furthermore, when the American dollar surges in relative value on account of the interest rate increase, that is the moment during which the oligarchy goes on its buying spree in whatever areas in the world where their precious dollar now buys significantly more than it formerly did.

        Financial crashes — as distinct from real world and recurring economic crises inherent to the capitalistic structure of production and exchange — are engineered for a purpose, with each successive crisis ending by having increased the concentration of private property into the hands of the superlatively rich. Financial and economic crises — unless pushed too far — do not augur the imminent collapse of capitalism but in fact are testaments to its robust efficacy.

        Social and military collapse would be the only possible portents of an implosion of either capitalism or the U.S. empire.

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  5. Actually the New Zealand dollar has been pretty steady since August. It’s directly tied to the Chinese yuan, as China is our major trading partner. When the Chinese government devalued the yuan in August, the New Zealand dollar dropped from 82 cents US to 65-68 cents.

    With the devaluation of the US dollar in the last few days, it’s trending closer to 68 cents.

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  7. Reblogged this on Taking Sides and commented:
    The American dollar as the world’s reserve currency is propped up by one thing alone, the American military (and it might be added that all national currencies are likewise propped up, at bottom, by a monopoly over the means of violence, over police and military functions).

    Therefore, the only thing that can possibly undermine America’s economic pre-eminence is the emergence of a military alliance sufficiently powerful to stare down American terror. That seems to be emerging through the Russian and Chinese alliance and as here indicated by Zimbabwe migrating to the Yuan.

    As for the fluctuations in interest rates and the relative values of currencies, all of this is but a means of expropriating real world assets.

    When interest rates are lowered by decree, debt surges; and when the rates are subsequently raised at the moment believed to be most propitious, bankruptcies ensue and real world assets, which were secured debt collateral, are forfeited.

    Furthermore, when the American dollar surges in relative value on account of the interest rate increase, that is the moment during which the oligarchy goes on its buying spree in whatever areas in the world where their precious dollar now buys significantly more than it formerly did.

    Financial crashes — as distinct from real world and recurring economic crises inherent to the capitalistic structure of production and exchange — are engineered for a purpose, with each successive crisis ending by having increased the concentration of private property into the hands of the superlatively rich. Financial and economic crises — unless pushed too far — do not augur the imminent collapse of capitalism but in fact are testaments to its robust efficacy.

    Social and military collapse would be the only possible portents of an implosion of either capitalism or the U.S. empire.

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    • Interesting perspective, Norman, about all countries using the military to back up their currencies. I think there’s also a tendency for a really strong economy (like China’s) to increase the value of a currency. I suspect this is why China has to keep devaluing their currency – when a currency gets too high, it’s hard to get people to buy your exports.

      In New Zealand, we learned this the hard way. When our dollar was up above 80 cents, our farmers were going crazy because no one would buy their milk powder. They’re much happier now. Increasing US interest rates will depress the New Zealand dollar even more, and they will be ecstatic.

      Thanks for reblogging, by the way.

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    • The U.S. does not have a monopoly on predatory capitalism leading to bankruptcies and subsequent expropriations of wealth. Foreign multinationals are playing by the same rules. Oversupply in the oil and metals markets have led to record corporate bankruptcies. While the Brazilian Real, Russian Ruble and Canadian dollar have been decimated in the past 18 months the big miners, and Russia and OPEC, have been creating a commodities glut by expanding supply well beyond demand. Oil is oversupplied by about 2% per day. The revenues lost by this “market share protection” scheme far exceed those gained by the overproduction with oil down 70 percent in the last 18 months. The endgame here is that foreign multinationals are busting out the competition, and nobody is talking about anti-trust laws or product dumping. These firms are counting on the competition disappearing, and effectively engineering a tight market controlled by an oligopoly that will create higher prices and bigger market share. Meanwhile, while China is slowing, they are hoarding oil and other commodities at artificially depressed prices that they know won’t last.

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      • Can’t disagree with anything that you write, but you will notice that I wrote:

        “Financial crashes — as DISTINCT FROM real world and recurring economic crises inherent to the capitalistic structure of production and exchange — are engineered for a purpose, with each successive crisis ending by having increased the concentration of private property into the hands of the superlatively rich. Financial and economic crises — unless pushed too far — do not augur the imminent collapse of capitalism but in fact are testaments to its robust efficacy.”

        My remarks are focused more on the dynamic resulting from the financial monopoly — i.e., the world reserve currency status of the U.S. dollar — that belongs exclusively to the U.S. as the ascendant imperial hegemon, although that ascendancy is now being challenged. So you are talking about one thing, and I’m talking about another, although the two things are interrelated, although control over money creation and its allocation as debt may be slightly more significant in terms of its utility for concentrating private property into the hands of the rich. You can’t buy impaired assets, either of the financial variety or the production and distribution kind, without money. And how convenient it is when you can print the ‘money’ you need to buy things at will and in any required quantity.

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      • For a discussion of the finance side of the conversation, see this essay by Michael Hudson, titled “How Russia May Create a More Viable Financial and Fiscal System.”

        URL: http://michael-hudson.com/1999/04/how-russia-may-create-a-more-viable-financial-and-fiscal-system/

        For a Marxist take on what I refer to as the “real world and recurring economic crises inherent to the capitalistic structure of production and exchange” see something that I wrote, titled “Reading Marx: Where Does Profit Come From? (And Why The ‘Rate of Profit’ Must Fall).”

        URL: http://normanpilon.com/2015/03/16/reading-marx-where-does-profit-come-from/

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