Forbes reports that China and Argentina agree to currency swap.
(emphasis mine) [my comment]
China Touts Yuan To Emerging Economies
Tina Wang, 03.31.09, 03:25 AM EDT
Eager to boost its ailing export sector and raise its profile, Beijing pursues currency swaps to assist trade financing.
Facing a precipitous slide in exports and tens of millions of unemployed migrants, China is hoping to lubricate financing for emerging markets to buy its goods, in the process symbolically raising the yuan's profile on the global economic stage.
In the first such move involving a Latin American country, China struck a 70 billion yuan ($10.2 billion) currency swap agreement with Argentina that would allow the latter to put in yuan-denominated orders for Chinese imports and thereby avoid using the U.S. dollar in bilateral trade. Analysts expect China to pursue more bilateral currency swaps with emerging markets in order to give a boost to its ailing export sector.
The agreement with Argentina marked China's sixth bilateral currency swap. Beijing extended a 100 billion yuan ($14.6 billion) swap line to Indonesia last week and a 20 billion yuan ($2.9 billion) swap line to Belarus earlier this month. China has also reached swap arrangements with South Korea, Malaysia and Hong Kong. The swaps, totaling 650 billion yuan ($95.1 billion), will last for three years.
Alternative yuan funding for trade with China could help ease the demand for U.S. dollars for other imports, an effect that would particularly benefit South Korea and Indonesia, which have faced dollar shortages, a Citi note observed Tuesday. "We expect more agreements with other emerging market countries will be in the pipeline," as the swaps will help "Chinese slumping exports by making access to finance easier," it said.
The International Monetary Fund estimated that emerging markets will suffer a 10% drop in trade financing in 2009. South Korea, Hong Kong and Malaysia did not [at least so far] appear to be taking steps to use the swaps, but Indonesia's central bank reportedly met with local banks to determine which will draw on the swaps, Citi analysts observed.
Argentina gets more access to foreign currency reserves, which is useful in case it encounters a balance of payments bottleneck. The peso has weakened in the course of the global financial crisis, as terms of trade move against the country's primary exports. China, a big importer of Argentine soybeans, is Argentina's second-largest trading partner; bilateral trade amounted to $965 million in February. The agreement with China was announced Monday in Medellin, Colombia, by China's central bank Governor Zhou Xiaochuan, who recently made headlines when he called for a replacement of the dollar as the global reserve currency of choice. Argentina was not part of the U.S. Federal Reserve's program last year to extend $30 billion swap lines to emerging markets, including Brazil and Mexico.
The yuan has the "greatest potential" and "a significant role to play in the current redesign of the international monetary system," Argentina's central bank said Monday. China has sought to assert a greater voice in international financial affairs in preparation for Thursday's summit of G20 countries, expressing concern about the U.S. dollar's weakness as a consequence of Washington's spending binge, prompting U.S. President Barack Obama and Treasury Secretary Timothy Geithner to go on the defensive last week.
Since the yuan is not [yet] fully convertible, the swap lines will not be of much help for most central banks in stabilizing their currencies. But, "in the longer term, we think it is China's strategic economic and political interest to promote the broader use or internationalization of CNY," the Citi note concluded. "While the internationalization of CNY
has a very long way to go [will happen within a year], we see China as using the global crisis as an opportunity to take early steps."
The Financial Times reports that China and Argentina agree to currency swap.
China and Argentina in currency swap
By Jude Webber in Santiago
Published: March 31 2009 01:25 Last updated: March 31 2009 01:25
China, which is pushing to end the dominance of the dollar as a worldwide reserve, has agreed a Rmb70bn ($10.24bn, £7.18bn, €7.76bn) currency swap with Argentina that will allow it to receive renminbi instead of dollars for its exports to the Latin American country.
Xinhua, the official Chinese news agency, said the deal was signed on Sunday by Zhou Xiaochuan, governor of the People's Bank of China, and Martín Redrado, Argentine central bank president, in Medellín, Colombia, where they are attending a meeting of the Inter-American Development Bank.
An Argentine official confirmed a deal had been discussed and said the fine print was being worked out and negotiations were "very advanced".
Beijing has signed Rmb650bn ($95bn, €72bn, £67bn) of deals since December with Malaysia, South Korea, Hong Kong, Belarus, Indonesia and, now, Argentina in an attempt to unblock trade financing that has been severely curtailed by the crisis.
Mr Redrado voiced support for China's call for a new currency reserve regime at his meeting with Mr Zhou. "One of the issues was this idea to incorporate other options to the dollar. There was a lot of consensus on this," the Argentine official told the Financial Times.
China View reports that Argentine media hails Argentina-China currency swap deal.
Argentine media hails Argentina-China currency swap deal
www.chinaview.cn 2009-03-31 14:50:07
BUENOS AIRES, March 30 (Xinhua) - Local media on Monday hailed the recently signed China-Argentina currency swap agreement, insisting that Argentina is able to pay for imported products from China in RMB.
Local media expressed different points of view on the agreements, a report from the daily "Clarin" headlined "China to loan 10 billion USD to BCRA (the Central Bank of Argentina) to calm the dollar," while the daily "La Nacion" said "Historical agreement with China to eliminate the USD on commercial exchange."
La Nacion said that the agreement signed in Medellin, Colombia's second largest city, enabled "Argentina to pay its imported products from China in RMB."
My reaction: This is big news. China has been signing trade settlement packs and currency swaps with all its Asian neighbors, but this is the first such deal outside of Asia!
1) China struck a 70 billion yuan ($10.2 billion) currency swap agreement with Argentina that would allow the latter to put in yuan-denominated orders for Chinese imports (avoiding use of the US dollar).
The deal was signed on Sunday by Zhou Xiaochuan, governor of the People's Bank of China, and Martín Redrado, Argentine central bank president, in Medellín, Colombia.
2) Mr Redrado (Argentine central bank president) voiced support for China's call for a new currency reserve regime.
"One of the issues was this idea to incorporate other options to the dollar. There was a lot of consensus on this,"
3) Argentinean media on Monday hailed the recently signed China-Argentina currency swap agreement.
"China to loan 10 billion USD to BCRA (the Central Bank of Argentina) to calm the dollar"
"Historical agreement with China to eliminate the USD on commercial exchange."
4) Since December Beijing has signed currency swaps with Malaysia, South Korea, Hong Kong, Belarus, Indonesia and, now, Argentina.
5) The swaps, totaling 650 billion yuan ($95.1 billion), will last for three years.
6) Indonesia's central bank reportedly met with local banks to determine which will draw on the swaps
7) China is expected to continue pursuing more bilateral currency swaps with emerging markets.
8) Alternative yuan funding for trade with China will decrease demand for US dollars.
9) China has sought to assert a greater voice in international financial affairs and has expressed concern about the U.S. dollar's weakness.
My reaction: If China keeps signing these currency swaps and trade settlement agreements, the yuan could become a full fledged international currency much quicker than most people expect. More specifically, I expect a loss of confidence in the dollar later this year, which will force Chinese officials to make the yuan fully convertible to prevent the collapse of international trade.