China has become a significantly better partner for African countries than the West can ever hope to.
Having spent some time in international development, the stories are the same: Western loans are always tied towards 'education', which barely makes a dent when you figure out how much corruption there is on both sides of African and Western governments. Chinese funds are often for critical projects, which have clear measurable impacts, like roads and dams. In return, China gets access to Africa's plentiful resources.
I too have worked in international aid in Africa, in anti-corruption, anti-money laundering. From what I have experienced, one of the big differences is that Western "Aid" doesn't go towards building palaces and palatial parliaments for the ruling elite, in places surrounded by abject poverty, something the Chinese clearly have no problem with.
Did you even read the article? You know, the part where China is providing aide to and voicing their support for Robert Mugabe, one of the world's worst dictators. How is that good for Africa?
Bad guy, but I think the point here is that dams and roads are useful, and will continue to be useful through many possible future regime changes. The western conception of good goverment mostly seems to be granted to those who are useful to the west.
More than just useful, roads are a huge enabler of local economies. Many rural areas in Africa are so poorly served by roads that it is impossible to build any decent size of business there without access to a lot of starting capital. Even if a lot of the money disappears, having it tied to infrastructure deliverables is a win for the population.
The existence of an arguably worse dictator someplace else with US support does not excuse China from providing support to a terrible dictator in Africa. That logic doesn't work in either direction. For example, if I think the US is doing something bad, I don't feel any better about it if I discover that China is doing the same thing but worse.
Tu quoque is fallacy only if we use it to justify our own actions.
I was not using the argument as a excuse. I was just pointing out that what China does is normal. National interest trumps human rights everywhere. The main difference is that western countries must justify their actions to the public. We use human rights to rationalize wars against enemy dictators while staying inactive towards our own dictators.
Moral arguments from every side in international politics should be seen as propaganda.
Depends on how you define significantly better, I guess.
China gets access to their resources, loots them for pennies on the dollar, and has a big pool of cheap labor to do the work for them.
The education angle at least has the possibility of providing the future generations with tools to question their overlords behaviors. Not saying the result is gonna be that great, given the corruption both within African politics and Western politics.
How about this: China is just being less hand-wavey about what it wants... resources, cheap labor, and hey you also get to pay us back for helping to plunder your lands and people... and leaving the feel goods about "education" out of the conversation altogether.
The measurables look good on paper, but will leave future generations wondering what the fuck was going on.
On the one hand, there is nothing inherently wrong with the growth of an alternative to the USD as a global market currency, there are good arguments in favor of diversifying that function anyhow.
The dark side is that China has a history of being very good at economic subjugation in Africa. This feels a bit like a "lender of last resort" scenario, with a lot of contingencies and costly terms.
But it can be said in particular of Africa in the more relevant and recent hundred years or so. Especially in the context of the comment that sort of loosely implied China was alone in subjugating Africa, in the present day.
Is the exploitation of the African continent just in the light of previous exploitations of other groups? I genuinely do not understand the point of this comment and would like you to explain it further.
Cambodia where I'm almost at does the same - dollars from the ATMs. Growing 7% a year. Maybe outsourced currency can work as long as you don't let everyone borrow loads and end up as Greece.
The problem with Cambodia being pegged to the USD is that they are subject to the whims of the US economy, rather then in line with the local, regional economy.
Cambodia would be much better off using a neighbour's currency than the USD.
Really? Let's see, we got the Baht, Dong, and...kip (laos is very dollarized also, though). None of those are particularly appealing. You could argue for the Baht maybe.
The only reason the Cambodians are using dollars anyways is (a) no trust for the riel, and (b) a peacekeeping operation in 1993 injected a lot of dollars into the economy, and the people just went with it. It doesn't get anymore organic than that!
Singapore is a city state. I don't think they want to be involved in letting other countries use their currencies! Really, the economy you borrow your currency from has to be huge to support that, so there are really only a few choices: USA, Europe, maybe Thailand could (but it is still quite small), maybe Australia, and of course...China (but RMB doesn't float, so a non starter). Dollars have stability that is on par with gold (or even better, recently), so why not just go with that?
"In recent months, some Zimbabwean economists had argued that the country should increase its use of the Chinese currency in a bid to get around U.S. sanctions."...hmm other dictatorships may follow suit...
"Six months ago Zimbabweans were told that they would be able to exchange bank account balances of up to 175 quadrillion Zimbabwe dollars for just 5 U.S. dollars – a heartbreaking sum, given that it was many people's life savings."
that's just embarrassing. for your currency units to get up to 175 quadrillion (i don't even know how many zeros that is) means you've faced extended periods of hyperinflation. it's like when you have an Excel error in your balance sheet model and your cash balances increases exponentially. except this is IRL for zimbabwe.
Anyone who follows the work of Randall Wray[1] and Bill Mitchell[2] knows this is a terrible idea. Relinquishing sovereignty of your currency (or pegging it to another currency or commodity) only narrows domestic policy space.
Right. For a functioning economy with a functioning government, functioning central bank, and functioning currency. But that is not Zimbabwe in the 2000's.
Zimbabwe became a dystopian cliché of hyperinflation and societal breakdown, with 80% unemployment and 100% inflation per day. It is the current example we use when we summon up the absurdist "wheelbarrows of currency" imagery. Basically, they were limited to a barter economy, with a thick layer of authoritarian interference in what became a very limited system of production and distribution of goods & services.
To create a currency union that's sustainable, you have to commit to a fiscal union (where there is stable net wealth transfer from New York to Nebraska through things like social security), and/or to a very stiff amount of labor mobility & remittances (where internal migration to the site of available employment is as common as in the Dust Bowl). The EU did not have enough of the latter (for a bunch of reasons), and chickened out on the former; In that case failure was unavoidable, and credit availability simply delayed an inevitability.
You can give up 'monetary sovereignty' in a long-term stable manner and sustain a functioning economy if you're willing to do these things. The United States did. We have whole regions that would be depopulated without social security, Medicare, and welfare to keep the population alive without its manufacturing base. We have abundant internal migration.
But Zimbabwe is a whole other sort of thing. They didn't relinquish much of anything when they gave up their currency; They had to build a new economy from the foundations on up.
To create a currency union that's sustainable, you have to commit to a fiscal union
I have come to agree with this. I was a supporter of the Euro and Emu since the 1990s, but I think I've been convinced that trying have a single currency without full fiscal union is folly.
You should choose to either have balkanised currencies, or a federal financial bucket, meaning the richer countries subsidise the poorer ones.
We went with Option C in Europe, and I don't have a lot of confidence that the Euro can survive in the long run in the current system.
Agreed. I simply can't imagine what would happen if our federal fiscal policy was left up to the 50 states individually. Jesus that would be bad. Texas, my personal and favorite example, would go from an economic powerhouse to unable to support its economy, ever, if anything went south, pun intended.
I agree. Without a fiscal union, you just have a fixed exchange rate. Look at the Euro for example. Since Greece and Germany make separate fiscal policies but have the same exchange rate (due to the Euro), if their labor force output (GDP) doesn't match then the real cost of the Euro goes up in the lower output country (Greece). They lose the ability to adjust policies based on their current economic situation.
Each separate state in the US has a fixed exchange rate with each other (1 USD = 1 USD), but our fiscal policy is administered by a central authority that adjusts for overall US conditions, not just individual states.
The more interesting take I've read on this is that the financial planners who instituted the Euro certainly saw this coming, and were using it in order to force through fiscal integration a decade or two down the line once they had achieved crisis conditions necessary for massive change.
Yes to create a stable currency union you need a fiscal union. The EMU is doomed and the Euro along with it.
The answer to the Zim problem is not the adoption of multiple currencies they don't control, though, unless they are just completely abandoning the goal of self governance altogether.
"unless they are just completely abandoning the goal of self governance altogether."
That may be exactly what they're doing. Mugabe can't live forever, and his cronies could well be selling the country off to China, with an exit strategy in place to spend the rest of their lives in comfort in a third country.
They did have control over their currency and looked what happened. The big problem they face now is trust. If they came out with a new currency, no one would trust it enough to use it in everyday transactions. Regaining trust in the government and their currency will take quite some time.
When China pegged it had completely unassailable reserves of USD. Pegging currency leaves you highly vulnerable to speculative traders and limits the extent to which you can pursue fiscal policy that promotes the prosperity of the populous.
> Anyone who follows the work of Randall Wray and Bill Mitchell knows this is a terrible idea.
Retiring the domestic currency is an existing policy that this article is only tangentially about.
Adding the yuan to the set of currencies support by the government for public uses given the absence of a domestic currency is the subject of the article.
> Relinquishing sovereignty of your currency (or pegging it to another currency or commodity) only narrows domestic policy space.
Once your currency has so little credibility that no one is using it in practice, its advantage in terms of domestic policy options is minimal, anyway.
All you have to do is reissue a new currency just as Germany did and just as Ghana did (and hope you can manage the new one properly!)
Hyperinflation in Zimbabwe was caused by agricultural mismanagement and cronyism. There's no reason they can't fix it except they have shit leadership. Adopting the Yuan DOES, I suppose, remove control from the shit leadership so maybe it's a great idea.
>All you have to do is reissue a new currency just as Germany did and just as Ghana did (and hope you can manage the new one properly!)
People have to trust you enough to use your new currency, though. Nobody in Zimbabwe is going to trust the government that far without a change in leadership.
Except that people don't actually need to hold NewZims. If they don't trust the currency (and they won't, not in Zimbabwe), they'll work for dollars, save in dollars, and then on tax day they'll convert just enough dollars into NewZims to pay the taxes. That way they're safe from NewZim currency manipulation.
The only people who'll get paid in NewZims are government workers, and when they get paid they'll rush out to convert their NewZims to dollars that people are selling to pay taxes.
The only way this cycle stops is if the hassle and expense of currency transactions outweighs the distrust of the government's stewardship of the currency. Until that time the NewZim is trading at some huge multiple of the official exchange rate.
There was a really interesting Planet Money episode from NPR about how introducing a new currency saved Brazil from hyperinflation. I'd highly recommend it:
They invented a new "virtual currency", stabilized it, denominated goods and services in the virtual currency, built public trust in the conversion rate between the (stable) virtual currency and (unstable, still experiencing hyperinflation) regular currency, and then finally switched the country over to the new currency.
> Four economists wanted to create a new currency that was stable, dependable and trustworthy. The only catch: This currency would not be real. No coins, no bills. It was fake. "We called it a Unit of Real Value — URV," Bacha says. "It was virtual; it didn't exist in fact."
> People would still have and use the existing currency, the cruzeiro. But everything would be listed in URVs, the fake currency. Their wages would be listed in URVs. Taxes were in URVs. All prices were listed in URVs. And URVs were kept stable — what changed was how many cruzeiros each URV was worth.
This was not the only fix, though, as I understand it. The government also had to change its policies that were causing hyperinflation in the first place. However, inflation was continuing more than it should have because the public had lost trust in the currency and assumed it would debase in value every day. The finance ministry needed to regain trust, and the new currency and currency swap allowed them to do that.
Great story I'm gonna check it out ... Interestingly, though, all money is virtual. In fact, you can think of a currency as a unit of account the same as a metre is a unit of length.
Even in currencies which have notes and coins they only make up a single digit percentage of the total volume of money.
When governments spend, they do so by crediting accounts at a central bank account (ie. They spend their own currency into existence) and taxation is the opposite of this.
The upshot of this is that governments don't need to tax before they can spend (in fact it's the opposite), are not constrained in their fiscal policy by "raising revenue" and have danger of insolvency so long as they only issue debt denominated in their own currency.
I can't reply to your comment, so I'll reply here (I'm not crazily replying to myself ... )
People need to obtain dollars from somewhere. If the total tax liability in NewZims exceeds the number of dollars obtainable then people will have no choice but to use it.
Also of note is that strong banking institutions are invaluable in this process. If people owe money in NewZims because of money created through private sector lending they'll also need to obtain them from somewhere in order to pay those debts. Making it illegal for banking institutions to hold accounts in currencies other than the national currency is also a means of avoiding this problem (ie. if people want to use banks they need to hold NewZims).
Of course this all hinges on the ability of the sovereign to actually impose sufficient liabilities on the populous in the first place and it would take time for the new currency completely replace the foreign ones but it's doable and is the only road to long term repair of a nation unless they're accepting what amounts to being colonised again.
You can't have sovereign government without sovereign currency.
> Adding the yuan to the set of currencies support by the government for public uses given the absence of a domestic currency is the subject of the article.
Doesn't allowing multiple currencies have all the problems of bimetallism?
Zimbabwe doesn't have a sovereign currency. Well, it might have one technically, but the de facto currency is the US dollar. It's rarely a terrible idea to admit to reality.
It's a bad idea to try and solve the problem of hyperinflation by piling on more currencies they don't control (unless they want to just not really govern themselves ... )
I haven't but there are plenty of examples of governments solving hyper or high inflation by reissuing a currency and resolving the cause of inflation in the first place.
Isn't that the whole point? I get the impression that Zimbabwe's policymakers have a terrible reputation, so they are deliberately tying their own hands in order to restore confidence in their currency.
They are completely abandoning their currency, which is a strange way of restoring confidence in it; it may be a measure to restore confidence in the economy, at the expense of the currency.
Reissue a new currency. Problem solved (well, so long as the root causes of the hyperinflation are also solved ... Which in the case of Zim may not be so ...)
I wonder why so few people in Europe realise that. Despite how bad the consequences are (eg. Greece). Luckily my country (Poland) still prints its own currency and manages its own monetary policy.
> I wonder why so few people in Europe realise that.
I don't think there's ever been any confusion that the adoption of the Euro limits member countries' domestic policy options; people in Europe may have differences of opinions about whether this is a good tradeoff for having a common currency and increasing Eurozone-level policy options, but I don't think many of them fail to realize that limiting local policy options is an effect of the Euro.
OTOH, there's a difference between an upward transfer to a higher-level government that is still accountable to your citizenry (even if their voice is diluted because it is a higher-level government with broader scope) and outsourcing monetary policy to an external issuer.
Of course, the headline is misleading, as per usual...
From the article:
"By 2008, foreign currencies such as the U.S. dollar and the South African rand had become de facto currencies thanks to a booming black market. The following year, the government announced that it would officially allow businesses to use these currencies, effectively abandoning the Zimbabwean dollar.
The new agreement would add the yuan to the list of currencies used for public transactions, and the Zimbabwean government said it would encourage its use."
Dollar hegemony is the tendency for the US dollar to act as the world's reserve currency; a benchmark for countries to stabilise their currencies against, hold reserves in and denominate international agreements in.
Those sufficiently keen to see the end of dollar hegemony, or certain that it will end in the near future tend to argue that anything which involves other countries agreeing to denominate anything in foreign currencies other than dollars spells the end of it. The reality is that Zimbabwe has minimal influence on the world economy and already uses multiple currencies alongside USD to denominate its contracts in the absence of an adequate domestic currency.
Having spent some time in international development, the stories are the same: Western loans are always tied towards 'education', which barely makes a dent when you figure out how much corruption there is on both sides of African and Western governments. Chinese funds are often for critical projects, which have clear measurable impacts, like roads and dams. In return, China gets access to Africa's plentiful resources.