Currency Wars: Zimbabwe Adopts the Chinese Yuan

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

 

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*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

 

What They Won’t Tell Us About China’s Economy

China Rises: Getting Rich

New York Times Documentary (2013)

Film Review

“How China Backs Its Enormous Economic Success”

China Rises purports to uncover the secret of China’s phenomenal economic success. It traces the massive migration of rural peasants into scores of newly fabricated cities and industrial centers. Of the thousands of new factories springing up over the last thirty years, half are privately owned and half are state owned enterprises. Most manufacture consumer goods (clothes, electronic gadgets, shoes, textiles, heavy appliances, household goods, toys, watches) for export.

The filmmakers attribute China’s economic miracle to their newfound openness to private enterprise and their ridiculously low wages. At the time the documentary was made, the average Chinese wage was 60 cents an hour for a 12 hour day. By the end of last year, this had increased to $1.69 an hour Rising Chinese Wages

Most of the film focuses on the lavish lifestyles of China’s most famous self-made millionaires. There are also several interviews with rural peasants who have migrated to China’s designer cities to work. Most are extremely grateful for the opportunity to earn money to lift their families out of extreme poverty. Women, however, tend to be sad about being separated from their children – their earnings aren’t sufficient to bring them to the city, so they are cared for by grandparents in the rural villages.

The film also features segments about China’s emerging middle class learning to pamper themselves and China’s rampant knock-off industry, specializing in counterfeit luxury items, fake birth control pills, fake antibiotics and even fake milk powder. The latter caused 54,000 Chinese babies to be hospitalized (six died) in 2008.

Ignoring the Real Reason for China’s Stellar Growth

What I find most significant about this video is what it leaves out. In fact, it totally ignores the main impetus for China’s phenomenal growth – namely a monetary policy that doesn’t rely on borrowing money from private banks.

As of February 2014, China had only borrowed a total of $US 823 billion from foreign banks – about  9% of GDP. In contrast, the debt the US owes to private banks is 101.5% of GDP.

Unlike most western economies, 90% of the loans used to finance businesses and government services originate from China’s government-run central bank.* Bloomberg’s refers to it as “Chinese-style” quantitative easing, ie the Chinese government is creating the money out of thin air, rather than borrowing it from private banks (and paying them interest to create it out of thin air).

This differs from US-style quantitative easing in that the Chinese government spends the money they create directly into the economy instead of handing it over to private banks.

Despite Obama’s recent attacks on China for “weakening their currency,” neither the President nor the corporate effort make any effort to explain exactly how the Chinese are doing this. The explanation is actually fairly simple: pumping more yuan/renminbi into the Chinese economy causes inflation and weakens the currency’s value in relation to other global currencies.

The corporate media glosses over these details because they don’t really want Americans to understand where US dollars come from – that 97% of the dollars in circulation are created by banks out of thin air and loaned to us at interest. Or that depending on private banks to create and control our money supply is a big reason for our current economic crisis. See Stripping Banks of Their Power to Issue Money

They especially don’t want us to realize there’s an alternative – government-issued currency by a government owned central bank – nor that it’s working miracles for the Chinese economy.

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*Contrary to popular belief, the US central bank, aka the Federal Reserve, is a consortium of private banks overseen by a government appointed director (Janet Yellen).