Argentina adopt measures to encourage yuan use, dollar is still preferred

With a shortage of international currency reserves, Argentina has increasingly turned to China and the use of the yuan as an alternative to the dollar. However, analysts argue that these measures, which effectively serve Beijing’s interests, do not alleviate Argentina’s problems. Companies still struggle to access financing, even in yuan, and on the streets, dollar transactions remain preferred, followed by the real and the peso. The Chinese currency is not a viable option.

On Friday, the Argentine Central Bank authorized the opening of yuan-denominated accounts in the banking system. The objective of this measure is to encourage companies to use Chinese currency for payments related to imports from China. “The proposal aims to replace a portion of Argentina’s negative trade balance in dollars with yuan, thereby easing exchange rate pressures,” explains Letcher.

Expanding the use of the yuan enables the Argentine government to reduce pressure on the balance of payments, but it also increases dependence on China, caution analysts.

“For 15 years, Argentina’s trade balance with China has been in deficit, with cumulative values exceeding US$ 70 billion. This dependency is now deepening and could extend to other areas, such as telecommunications or defense. The economic significance [of these new measures] directly translates into political influence,” warns economist Mariano Turzi, a professor at the Austral University of Buenos Aires.

The chart below shows Argentina’s containerized imports measured in TEUs from Jan 2019 and May 2023. The data is from DataLiner.

Argentine imports from China | Jan 2019 – May 2023 | TEU

Source: DataLiner (click here to request a demo)

According to Turzi, using the yuan in Argentina may bring some benefits, as “facilitating the import of inputs leads to advantages that ultimately benefit the population. However, this must be balanced with the costs of reducing domestic production.” Recently, over 500 Argentine companies requested to pay for electronics, auto parts, and textile equipment imports in yuan, as the country’s customs agency reported.

The deteriorating economic crisis, exacerbated by a historic drought that has further reduced the inflow of dollars, compelled President Alberto Fernández’s government to seek support from China. In May, China extended an $18 billion currency swap agreement with Argentina for another three years to bolster bilateral trade.

Consequently, as stated by the central bank, Buenos Aires authorized the payment of imports in yuan, equivalent to US$ 2.9 billion. However, details regarding the release of these funds were not provided, raising concerns among large companies, according to a source connected to the foreign trade sector.

In this context, the decision to use the yuan to partially repay Argentina’s $2.7 billion debt to the International Monetary Fund (IMF) has further frustrated prominent business figures. Some have had to halt production due to a lack of dollars, and they saw the liberalization of the yuan as a possible means of circumventing these difficulties.

Fonte: Valor Econômico

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