China: Argentina leaves the dollar and pays imports in yuan – 04/28/2023 – Market

Argentina will start paying for its imports of Chinese goods using the yuan instead of the US dollar, in a bid to preserve the country’s dwindling currency reserves, the government announced on Wednesday.

After reaching an agreement with several companies, the South American country will pay in yuan for more than US$ 1 billion (about R$ 5 billion) in Chinese imports, in April, and for between US$ 790 million (a little more of R$ 3.9 billion) and US$ 1 billion of additional imports starting next month, said the Minister of Economy, Sergio Massa, at a meeting in Buenos Aires with the Chinese ambassador Zou Xiaoli.

Argentina’s decision to settle China’s imports in yuan is a further stimulus to the world’s use of the Chinese currency. 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.

Argentina is struggling with a huge outflow of dollar reserves due to a sharp drop in agricultural exports caused by a historic drought.

The South American country has lost at least US$15 billion (about R$75 billion) in exports amid the worst drought in a century, Massa said. 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 already above 100%, companies and families are rushing to exchange pesos for dollars, which further undermines the country’s dollar reserves.

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

In a tweet on Tuesday (25), Massa vowed to use “all the tools” to stop the weight loss. Argentina’s government has decided to more actively use currency swaps with China, which could help Argentina save foreign exchange expenses worth a total of US$4.4 billion in the coming months, Massa said.

China and Argentina signed a currency swap agreement in 2009, allowing Argentine companies that export to China to make payments in 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 and added a special activation of 35 billion yuan to the previous agreement.

The deal will allow Argentina to speed up approvals for Chinese imports, Massa said, with yuan-denominated import orders being authorized in 90 days instead of the standard 180.

In a historic milestone for the Chinese currency, China’s use of the yuan in cross-border transactions jumped ahead of the dollar for the first time in March, according to a Bloomberg Intelligence survey, citing official data.

Last year, nearly half of China’s total cross-border payments and receipts were settled in yuan, the People’s Bank said. [banco central] from China in February.

The percentage of yuan settlements in the total value of merchandise trade reached 18%, and in foreign direct investment the proportion reached 70%. Both reached record levels, according to the report.

_{Caixin, translated by Paulo Migliacci}