15 Jan 2020
Zimbabwe and China have agreed on a currency swap deal, a move which is expected to boost trade relations between the two countries.
The negotiation was finalised following a visit by Chinese foreign affairs minister Wang Yi to Harare.
In a bid to promote the international use of the yuan, China has signed currency swap deal with over 20 countries around the world, including South Africa. A currency swap deal is an agreement by which countries exchange money in one currency for the same in another currency, and companies doing business overseas can often make use of it to obtain better loan rates.
As part of his five-nation tour to Africa, Wang completed his visit in Zimbabwe this week with the two nations agreeing to improve trade ties and economic collaboration. Zimbabwe relies heavily on China to finance its leading infrastructure projects, as the country is not eligible for funding from international financial institutions.
China is currently funding projects worth over R29 billion (roughly $2 billion) in Zimbabwe, such as the extension of the country’s main power plant, refurbishment of the central airport and the construction of a new parliament building for a planned new city on the limits of Harare.
Zimbabwe’s finance minister Mthuli Ncube told journalists in Harare as Wang concluded his visit, that a currency swap is beneficial for both countries as it will boost trade ties.
“We have entered into a currency swap arrangement; what this means is that there are those who would be investing in Zimbabwe from China and those who require their proceeds to be remitted back to China,” said Ncube.
“The idea is those individuals will then swap [currency] so that those who are investing in Zimbabwe are able to give them a domestic currency, and they use the foreign currency — which they are bringing in for investment — to pay those who are exiting.”
Ncube added that the currency swap will also help Zimbabwe’s government to enhance its ability to honour its liabilities to China.