Controversial Finance Minister, Mthuli Ncube, is back from his annual leave and to no surprise he is back to his usual antics. The minister caused some stir earlier today when he announced that Zimbabwe had signed a currency swap agreement with China.
“We have entered into a currency swap arrangement….” said Mthuli to reporters after meeting with Chinese officials. “It’s been approved, it’s as good as it’s started, it’s now just implementation” an excited Mthuli added.
The announcement was met with mixed reviews. A few hopefuls applauded the minister for taking the initiative to address the country’s foreign currency woes while critics found the news uninteresting as Mthuli is still yet to prove that his reforms actually work.
But what was more interesting was that the marjority of Zimbabweans found the announcement confusing. Most found the concept of currency swaps alien. One twitter user @masiemsoko tweeted “can someone who understands please explain to some of us”.
This confusion spurred a lot of discussion on the definition of a swap and its effect on the economy.
According to Mthuli’s layman explanation “for those who are investing in Zimbabwe we are able to give them a domestic currency and they use the foreign currency that they are bringing in to pay those who are exiting.”
In essence, investors, in the past have often worried about failing to repatriate proceeds in foreign currency. This is fortunately expected to come to an end as currency swap deals will enable new investors to give foreign currency to investors who wish to repatriate profits to their home country.
Additionally these swaps will reduce the need to use the US dollar when trading with China. “This means we can use our own currency to buy in China and the Chinese can use the Yuan to buy in Zimbabwe” commented political analyst Kudzai Mutisi who also added that currency swap agreements are a commendable sanction busting measure.
Zimbabwe is currently facing foreign currency shortages hence currency swap deals are a good initiative if managed well.