In his mid-term report on May 10, Bolivian President Luis Arce referenced Brazil and Argentina as two close countries that are agreeing with China to trade in yuan rather than in dollars, a path that Bolivia would follow because the “tendency in the region it will be that”.
Added to these statements, which aroused doubts and concerns in the national economic sphere, was the announcement by the president of the businessmen of the Department of Santa Cruz, Oscar Justiniano, who assured that progress would be being made in the creation of a Chinese bank in Bolivia to promote foreign trade, in coordination with the national government.
Justiniano’s statements came after a meeting he held with the Chinese ambassador, Huang Yazhong.
“That takes time due to regulatory aspects and others, but we seriously hope that it can be done because at the end of the day what you have to do is decompress the use of a particular currency, having the possibility of both paying in the country of origin with its own currency, as in the other country of destination to receive it in its currency. In our case, both currencies are stable,” Justiniano explained to the Bolivision network on May 11.
However, incorporating yuan into the Bolivian economy is not only a response to a trend and reconfiguration of the global system, as stated by President Arce, but also to an action to prevent the flight of dollars and to face the exchange crisis that the country is suffering.
For three months the problems of shortage of dollars have worsened and Bolivians have suffered the consequences with restrictions on banking operations in the US currency that until now has not been normalized.
Initially, the national government minimized the situation and later proposed to meet the high demand from the Central Bank of Bolivia itself through direct sales, but the demand continues. There is a waiting list to acquire this currency and a parallel exchange market has been formed.
According to economists consulted by the voice of americathis trend is the result, among other things, of the mismanagement of economic policy and years of fiscal deficits that have had repercussions in the decline of the Net International Reserves (NIR).
Added to this is the growth in fuel imports, which in 2022 reached 4.2 billion dollars, 2% of total imports, while gas exports fell to 3.4 billion dollars.
Background in the region
The ways in which China seeks to promote the yuan’s influence in Latin America and displace the US dollar have begun to attract expert attention after in Argentina, the government announced last month that its purchases from China would begin to be paid in yuan instead of dollars, to preserve its weakened international reserves.
Also in Brazil, where the yuan has supplanted the euro as the second largest foreign reserve currency, the government announced an agreement to trade with China in the currencies of both countries and avoid resorting to the dollar.
The Bolivian case
While President Arce maintains that the Bolivian economy is stable, analysts observe a crisis and even the breakdown of the “social and community economic model” that was described as “successful” and one of the greatest achievements of the leftist government.
In this scenario, what place could the yuan have?
Opposition senator Cecilia Requena considers that the problem of the national government is a “structural negation of the crisis in Bolivia” and that is why “distractive measures are taken that are not aimed at solving the crisis.”
“The yuan does not have the conditions to be an internationally accepted currency because it has many exchange restrictions and they are strongly determined by politics in a non-transparent manner,” adds Requena.
For the economist and former director of the Central Bank of Bolivia (BCB), José Gabriel Espinoza, these announcements have more of a political nature to mitigate the expectations of the population due to the lack of dollars.
“You have to understand that in Bolivia and probably in the region, a large part of the consumer goods come from contraband, they do not come from Chinese markets or intermediaries in that country but are bought from secondary markets, this means resale, and for this the dollar is used,” Espinoza said.
Implementing a compensation mechanism as proposed by President Arce between China and Bolivia directly would be very ineffective because it would require the formalization of the economy,” added the Bolivian economist.
In order for a currency to be of use for world exchange, it must have a very high degree of internationalization, according to the financial consultant Jaime Dunn.
90% of transactions are made in dollars, 60% of the Swift system (which facilitates the movement of capital between countries) is in dollars and the yuan is less than 2%. The other problem is the convertibility of the so-called capital account, which is extremely closed in China, which means that there are many restrictions and exchange controls.
One yuan is currently equivalent to 0.14 dollars and 0.98 bolivianos.
“Bolivia does not have the conditions for a change from the dollar to the yuan at this time because all the income from important exports that the country makes go to markets where we are paid in dollars and imports are also in dollars. On the other hand, we also have a trade balance with China that is negative”, explains Dunn.
While, although Bolivian businessmen see the possible creation of a Chinese bank in the country as positive, no further details have been given about how it would work.
In this regard, the economist Espinoza believes that in this proposal the background could be credits. “A Bolivian economy that borrows heavily in yuan and for this it must have a financial institution controlled by China operating in the region. From this, provide a sufficient amount of foreign currency so that those who take credits can have commercial operations with that country”.
Although some governments have expressed their distrust of the dollar and interest in replacing it with the yuan, the experts consulted by the VOA they do not see the US currency likely to lose its hegemony in the short or medium term.
And in Bolivia this measure could not be implemented in the short term. However, in bilateral trade some progress is possible.
“Transactions with countries are one thing and transactions with the Chinese yuan that could be handled at certain levels are another thing. But in daily activity, dollars or the national currency will always be handled and it will hardly happen that it will be replaced by the yuan”, says Dunn.
According to data from the Bolivian Institute of Foreign Trade (IBCE), 2022 marked an important peak in trade between Bolivia and China, exports were around 800 million dollars, and Bolivian imports from China exceeded 2,500 million dollars. .
As of the first quarter of 2023, external sales to the Asian country register a growth of 19%, and external purchases fell 7%, in relation to the same period of the last administration.
China is the main trading partner of South America and in Latin America the areas that most concentrate investments are energy, mining and infrastructure, electric vehicles and lithium.
The Asian giant has been promoting the internationalization of the yuan for a long time so that it is not only a reserve currency, as it already is in some countries, but also a currency of exchange, in contexts in which it can easily prosper.
It is not only an economic strategy but also a global geopolitical one that looks at the US on the currency battlefield. The Spanish journalist Juan Pablo Cardenal, editor of the Análisis Sínico project of Cadal.org, assures that the yuan “is used to trade with China, but not for trade between third countries as is the case with the dollar.”
Cardenal, a specialist in Chinese politics and economics, also explained that in order for the Chinese currency to have global demand and therefore be able to internationalize, compete and unseat the dollar, what the government would have to do is “eliminate capital outflow controls and this It is something that is not foreseen at all.”
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