Economy

Argentina ditches dollar to pay yuan for China imports

Apr, 28, 2023 Posted by Gabriel Malheiros

Week 202320

Argentina will start paying for Chinese imports using yuan rather than U.S. dollars in a move to preserve the country’s dwindling American currency reserves, the government said on April 26.

After reaching agreements with various companies, the South American country will pay for more than $1 billion of Chinese imports in yuan in April and an additional $790 million to $1 billion of imports starting next month, Economy Minister Sergio Massa said at a meeting in Buenos Aires with Chinese Ambassador Zou Xiaoli.

Argentina’s decision to settle China’s imports in yuan is the newest decision on an extensive list of measures that stimulate the use of Chinese currency in international transactions. In March, Brazil reached an agreement to begin settling some commercial transactions with China in local currency and took steps to facilitate trade with China in yuan. China is Brazil’s largest trading partner and Argentina’s second.

The decision comes as the South American nation battles critical levels in its dollar reserves amid a sharp drop in agricultural exports caused by a historic drought, as well as political uncertainty ahead of elections this year.

Massa said that Argentina lost at least US$15 billion in exports amid the worst drought in a century. The country’s agricultural exports are expected to drop by 28% this year, according to an estimate by the Argentine Foundation for Agriculture for Development.

Meanwhile, the Argentine peso has fallen to historic lows against the dollar as worries grow over the country’s economy. With inflation above 100%, companies and families rush to exchange pesos for dollars, further undermining the country’s dollar reserves.

As of April 24, Argentina had $36.47 billion in foreign reserves, up from $44.6 billion earlier this year, according to central bank data.

In a Twitter post on April 25, Massa vowed to “use every tool available” to stop the devaluation of the Argentine peso. In addition, Massa said that the country’s government has decided to use more active currency swaps with China, which could help Argentina save foreign exchange expenses worth a total of US$4.4 billion in the coming months.

China and Argentina signed a currency swap agreement in 2009, allowing Argentine companies that export to China to make payments in either yuan or dollars. The two countries initially agreed to a 70 billion yuan ($144 million) swap, or 38 billion pesos, in 2009. The amount increased to 130 billion yuan in 2020.

In January, the central banks of China and Argentina formalized an expansion of the currency swap pact, adding 35 billion yuan to the previous agreement.

The deal will allow Argentina to speed up approvals for Chinese imports, Massa said, as imports paid for in yuan should be approved in 90 days instead of the standard 180.

Last year, nearly half of China’s international transactions were settled in yuan last year, the People’s Bank of China reported in February.

The share of yuan settlements in the overall value of trade of products reached 18%, and the proportion in foreign direct investment reached 70%. According to the report, both set all-time highs.

Source: Folha De S. Paulo

To read the original report, please click on: https://www1.folha.uol.com.br/mercado/2023/04/argentina-abandona-o-dolar-e-vai-pagar-por-importacoes-da-china-em-yuan.shtml

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