Why will Argentina and Bolivia pay for their Chinese imports in yuan?

First modification: 05/14/2023 – 00:23

A new creditor. The president of Bolivia, Luis Arce, announced that his government is analyzing the possibility of using the yuan to carry out international transactions due to the shortage of dollars that his country is experiencing and which, he said, is a global problem and is “transitory”.

According to Arce, “in the world there are several countries that are going through illiquidity problems in dollars,” which led some to decide “not to trade” in that currency. “The two largest economies in the region are already trading in yuan in deals with China. And the trend in the region is going to be that,” she said.

Arce refers to Brazil and Argentina. The government of Luiz Inácio Lula da Silva ordered direct operations between the real and the yuan, excluding the dollar as a reference for exchange in transactions. According to Arce, Bolivia cannot “stay aside from what is happening,” so he instructed his monetary authorities to “look at what Argentina and Brazil are doing because you have to understand how it is working for them, and analyze and evaluate if it works for us.”

The Bolivian president asserted that the lack of dollars in the world is due to a “dispute for control of the world economy” between the West and the “bloc led by China, Russia, India.” He added that “the issue of the dollar must be looked at very carefully” in Bolivia and insisted that the problem of illiquidity is “transitory” and that the Bolivian economy “is fine”, contrary to what most independent economists affirm.

Argentina safeguards its dollars

Bolivia follows in the footsteps of Argentina. The country is struggling to restrict the outflow of dollars from its national reserves, and found a solution in the yuan. Argentina would also stop using the US currency to pay for imports from China and would switch to the yuan instead.

There, strict government controls make access to the official foreign exchange market limited, which is why parallel rates arose. The depreciation of the peso is due, in part, to the surprising monthly inflation of 7.7% in March, which raised the annual rate to 108.8%.

“It allows us to maintain the level of activity, maintain the volume of imports, maintain the pace of trade between Argentina and China and maintain the levels of economic functioning that Argentina needs,” said Sergio Massa, Argentina’s economy minister.

“First there is a global trend promoted by China seeking the internationalization of the yuan,” said Patricio Giusto, director of the Sino-Argentine Observatory. An initiative that seeks to go beyond being a reserve currency —which, according to the expert, “already is for several Latin American countries”— to become an exchange currency.

“It is something useful in foreign trade, especially considering that we are talking about countries that already have China as their first trading partner,” he adds.

According to him, “Bolivia and Argentina are two countries that are going through serious currency crises. It is a sovereign loan that China makes and every time we use it that is debt. They are both: internationalization and countries that go through a context for this to prosper “.

China’s commercial and economic influence is evident in the loans that the Asian giant makes to the region. Since 2005, banks linked to the Chinese state have disbursed around 140 billion dollars to governments in the region, according to the Inter-American Dialogue think tank.

with EFE