China And Argentina In US$7.2 billion Currency Swap Deal

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China and Argentina have formalized the expansion of a currency swap deal, according to the Central Bank of Argentina. The step is expected to boost Argentina’s forex reserves. The currency swap agreement allows Argentinian companies that export to China to make settlements in Yuan or US Dollars, which eases the outflow of foreign currency from the central bank. The Argentinian Peso has been under significant pressure over the past few years and has declined substantially since 2018.

China is currently Argentina’s second largest trade partner after Brazil, and the second biggest destination for Argentinian exports. Argentina’s Central Bank Governor Miguel Pesce and his Chinese counterpart Yi Gang “confirmed that the deal for the swap of currencies between both institutions has been activated and committed to deepening the use of (the Chinese Yuan) in the Argentine market.”

The chiefs of the Argentinian and Chinese monetary regulators met during the Bimonthly Meeting of Central Bank Governors hosted by the Bank for International Settlements (BIS) in Basel, Switzerland. According to the agreement, the procedure “comprises the exchange of currency for reinforcement of international reserves of 130 billion Yuan (US$7.2 billion) and a special activation of 35 billion Yuan to compensate operations on the foreign exchange market.”

Argentina’s government needs to rebuild reserves to cover trade costs and future debt repayments, as more reserves are a key objective of a major debt deal with the International Monetary Fund (IMF). The agreement will also help support the Argentinian Peso.

Argentina is an agricultural economy and major global supplier. It is the second largest member of the Latin American Mercosur trade bloc which also includes Brazil, Paraguay, and Uruguay and which has additional trade agreements with most other LatAm nations. Mercosur also has trade agreements with India and the Southern African Customs Union, which includes Botswana, Eswatini, Lesotho, Namibia and South Africa. Argentina’s major trade partners include Brazil, followed by China, the United States, Germany, Chile, Paraguay, Vietnam, and Germany.

Current China-Argentina bilateral trade is worth about US$18.6 billion, with Argentina joining the Belt and Road Initiative in early 2022. It had joined the Beijing led Asian Infrastructure Investment Bank in 2020. It has also applied to join an expanded BRICS.

Meanwhile, Chinese SOEs have been busy developing new infrastructure in Argentina and engaging in multiple trade deals – including agricultural agreements in soy and wheat crops. The main products that China exports to Argentina are computers, broadcasting equipment, and mobile telephones.

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