Argentina and China broaden currency swap

Argentina and China have now decided to broaden the reach of their currency swap deal, as experts project that the Latin American nation stands to gain from this arrangement which supposedly helps to hedge against shocks caused by the financial policy changes in the United States, while also encouraging local industrial development.

Experts say countries in Latin America are increasingly likely to increase their dependency on the Chinese yuan as a way to counter the hegemony of the US dollar, while further solidifying their economic allies with rival China.

The chiefs of the apex banks of both China and Argentina have confirmed that the currency swap policy is fully in motion and also that both parties remain committed to the core goal which is to further expand the use of the yuan in Argentina’s market. The Argentine Embassy in Beijing made this known in a release on Monday.

The Embassy further revealed that the swap arrangement includes the exchange of currency for the reinforcement of international reserves of 130 billion yuan ($19.2 billion) plus a special activation of 35 billion yuan to bolster operations on the foreign exchange market.

This current arrangement also signifies Argentina’s readiness to turn to China for loans and different kinds of credit facilities as the Latin American nation looks to fund the development goals and projects it has in the works. Argentina has been on the receiving end of the woes of dollar hegemony, which once led to country into a debt crisis.

“The swap expansion will help Argentina hedge the negative impacts of the US’ interest rates hike and Argentina’s insufficient industrial capability, while benefit China-Argentina bilateral investment and trade,” expert Wang Yiwei said.

In November, the Argentine branch of the Industrial and Commercial Bank of China debuted a yuan-clearing service, which is expected to bring ease and seamlessness to cross-border currency transactions, as well as promote the exchange of knowledge and human capital which will further broaden the development opportunities of both nations.

Argentina and China signed the first currency swap agreement in 2009 (with a 3-year validity term), worth 70 billion yuan. Five years later in July 2014, the countries signed another 70-billion-yuan currency swap deal. 

China’s apex bank renewed the currency swap deal with the Central Bank of Argentina in July 2017. The deal enables the central bank of both nations to exchange the 70 billion yuan for 175 billion Argentine pesos. In 2018, both apex banks signed an addition currency swap agreement worth 60 billion yuan to further bolster the 2017 deal. July 2020 saw another extension of the agreement.