In a strategic move to maintain economic activity without putting pressure on its central bank reserves, Argentina has turned to the Chinese yuan for importing intermediate goods from China.
This decision, worth over US$ 1,040 million this month, was announced by Argentina’s Minister of Economy, Sergio Massa, during a conference with the Chinese ambassador to Argentina, Zou Xiaoli, and other high-ranking officials and businessmen.
Leveraging yuan swap to boost bilateral trade
Argentina has an existing swap agreement with China, aimed at not only reinforcing the Central Bank’s reserves but also fostering stronger bilateral trade between the two nations.
The devastating drought, which has caused a US$ 15 billion reduction in the country’s export capacity, coupled with the International Monetary Fund’s redefinition of the import and export program, has led the country to reevaluate its import strategy.
By using the yuan for imports, Argentina can maintain access to essential intermediate goods while preserving its central bank reserves.
Massa explained that the payment instrument for over US$ 1,040 million this month will be reprogrammed to facilitate purchases in yuan, thus reinforcing bilateral trade.
This adjustment will also speed up the import process, decreasing authorization periods from 180 to 90 days and enabling supplementary purchases worth between US$ 790 million and US$ 1,000 million in the coming months. This transition will replace the use of Argentine dollars for these transactions.
Tackling import triangulation and over-invoicing
One of the key motivations behind Argentina’s decision to use the yuan for imports is the effort to curb import triangulation practices that lead to inflated prices for imported goods.
Customs inspections have revealed some companies over-invoice imports to earn dollars abroad, with goods being re-invoiced from Uruguay and Europe.
By importing directly from China using the yuan, Argentina can bypass these maneuvers and reduce its dependence on US dollars.
Chinese Ambassador Zou Xiaoli highlighted China’s commitment to enhancing bilateral trade and supporting the country’s sovereign economy.
He expressed support for using local currencies in exchange transactions to minimize risks and costs, as both nations collaborate to exchange information and bolster their complementary bond.
Argentina’s trade outlook and the role of China
Argentina’s decision to adopt the yuan for imports demonstrates the country’s determination to maintain economic stability and cultivate stronger ties with China.
By opting for the yuan, Argentina effectively addresses the challenges posed by a decline in dollar reserves while continuing to produce intermediate goods from China.
This shift also sends a strong message about Argentina’s confidence in its economic partnership with China, as both countries continue to work together in the face of global economic challenges.
Argentina’s decision to utilize the Chinese yuan for imports marks a significant turning point in its international trade strategy. By leveraging the swap agreement with China, the country is navigating its way through the challenges brought on by reduced dollar reserves and a weakened export market.
This strategic move not only strengthens bilateral trade between Argentina and China but also sets a precedent for other countries looking to diversify their currency reserves and enhance their economic resilience in an increasingly complex global economy.
Source: https://www.cryptopolitan.com/argentina-to-yuan-as-dollar-reserves-decline/