Argentina, desperately short of dollars, is turning to an unusual alternative to repay the $2.7 billion debt it owes to the IMF. In recent developments, the Argentinian Central Bank made a loan repayment of US$1 billion to the International Monetary Fund in Chinese RMB Yuan (¥ 7,200,300,000). Additionally, they disbursed US$1.7 billion in ‘Special Drawing Rights’ (SDRs), which is the IMF’s reserve asset composed of a basket of the world’s main currencies.
Argentina used Chinese RMB Yuan to pay part of the $2.7 billion payment due to IMF in June. While the country’s economic team continues to negotiate a new agreement with the IMF in view of the non-compliance with the three binding targets of the current program, it is speculated that the government could again make use of the freely available tranche of its currency swap with China to pay the $2.65 billion due this month.
This very unusual action shows how serious the situation is for the economy of Argentina and how important the yuan is becoming in the world.
According to the IMF ’s spokesperson, Argentina’s payment to the IMF in June in Chinese currency was a standard practice, and which can be used by member countries. Kozack also stated that, to date, Argentina continues to comply with its financial commitments to the IMF.
Argentina reached a deal with the IMF last year to restructure a loan of $44 billion, which was one of the historic record loans contracted in 2018 under former President Mauricio Macri.
The South American country is the target of the largest IMF assistance program as it grapples with year-on-year inflation, a severe shortage of foreign exchange and a poverty level of about 40 percent. Also, a record drought has seen agriculture exports plummet sending the country’s dollar reserve to the lowest level in seven years.
In April, the South American country announced it would use yuan to pay for Chinese imports instead of US dollars in order to preserve its reserves following a currency swap agreement with Beijing.
According to the Central Bank of Argentina, China and Argentina could exchange their currencies, making it easier for Argentina to use around $1.04 billion in Chinese money to pay for things they buy from China in May. Then, in June, during Massa’s visit to China, they agreed to extend this arrangement. Now, over the next three years, Argentina can access up to $18 billion in Chinese money. This means the amount they can use has increased from about $5 billion to nearly $10 billion.
Since 2014, China has also been working to position its currency as an alternative to the dollar with a cross-border, interbank payment system known as CIPS, which Beijing hopes will one day rival the SWIFT, or Western, clearinghouses.
The US dollar has long been the main global oil currency, including for purchases by India, but now the yuan is playing an increasingly important role in Russia’s financial system because Moscow has been frozen out of the dollar and euro financial networks by international sanctions.
The BRICS nations – Brazil, Russia, India, China and South Africa are speaking more loudly about currency alternatives. In China this year, Brazilian President Luiz Inacio Lula da Silva openly questioned the need for the dollar’s dominance.
In a major threat to the hegemony of US dollar, the world trade has started in Chinese Yuan (RMB) as India and Argentina have made recent payments to Russia and the International Monetary Fund (IMF) respectively.
Along with India’s recent use of the Chinese currency to buy Russian oil, Argentina’s move and the IMF’s agreement to accept it offers further evidence of the de-dollarization of the global economy.
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