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China pushes de-dollarization with gold reserves, Argentina yuan currency swap deal

Advancing global de-dollarization, China’s central bank is boosting its gold reserves while signing currency swap deals in yuan with countries like Argentina, encouraging the use of renminbi instead of US dollars.
 
by Ben Norton 

Part 3 - Chinese and Argentine central banks sign yuan currency swap deal

Argentina has struggled for centuries with odious debt owed to colonial and neo-colonial powers.

Today, the South American nation is trapped in $44 billion in dollar-denominated debt with the IMF.

Seeking to fortify its sovereignty and weaken US control, Argentina has strengthened its relations with China and Russia.

China is already Argentina’s second-biggest trade partner, after Brazil, and the ties between the countries are growing.

In February 2022, Buenos Aires joined Beijing’s massive global infrastructure project, the Belt and Road Initiative.

Argentina has also applied to join the expanded BRICS+ bloc, alongside Brazil, Russia, India, China, and South Africa.

This January 8, the president of Argentina’s central bank met with his counterpart from China.

The Argentine central bank reported that the two countries “committed to deepen the use of the RMB [renminbi] in the Argentine market for bilateral exchange”.

The swap offers 130 billion in Chinese yuan (roughly $19 billion USD), with an additional “special activation” of 35 billion yuan (approximately $5 billion USD) for interventions in the foreign-exchange market.

Argentine President Alberto Fernández had met with Chinese President Xi Jinping at the G20 summit in November 2022, where they discussed the currency swap.

The Argentine central bank has an account in its own currency, the peso, at the People’s Bank of China. China’s central bank has an account in yuan at Argentina’s central bank. Buenos Aires must pay Beijing back the 130 billion yuan, with interest. But the advantage is that dollars are not involved.

According to the Argentine central bank’s most recent report, from November 2022, its total reserves sum to $38 billion USD.

This means that the yuan currency swap represents roughly half of Argentina’s reserves. This will have a massive macroeconomic impact.

The newspaper Global Times, which is linked to the Communist Party of China and has a nationalist perspective, explained the thinking of some officials in Beijing, arguing that the currency swap deal “help the Latin American country hedge against shocks brought about by the US’ financial policy tightening while promoting its own industrial development”.

It is likely that more Latin American countries will increase the use of Chinese yuan in order to counter the US dollar’s hegemony, and strengthen economic ties with China”, the semi-official media outlet added.

Argentina is a significant agricultural producer, and its top exports include corn, soy products, and wheat.

Two-thirds of Argentina’s exports to China consist of soy beans, with an additional 7% of soy oil. Argentina also exports to China smaller amounts of beef, crude petroleum, and shrimp and prawn.

Most of what China exports to Argentina is various forms of advanced technologies, including phones, TVs, and machines.

Exports, especially from the agricultural sector, are one of the only ways Argentina can get access to foreign currencies – or more specifically dollars, which it needs to service its dollar-denominated debt with the IMF.

Normally, if a company in a country like Argentina needs dollars, or if a bank needs foreign currency for a loan, these firms would buy it on the foreign-exchange market. In contrast, swap lines cut out the middleman and create direct relationships between the central banks of countries.

The Chinese swap line deal could help Argentina hold on to dollars to service its debt, while using yuan to buy products from China.

Perhaps even more importantly for Buenos Aires, which suffers with high rates of inflation, it could also use yuan instead of dollars to stabilize the ever-weakening Argentine peso by intervening in the foreign-exchange market.

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