Argentina’s scarcity of dollars has led companies, including US household appliance giant Whirlpool, to consider using Chinese yuan to pay for imports.
As the dwindling supply of dollars affects businesses across the country, it highlights the financial challenges Argentina faces and China’s ambitions for the yuan.
The dollar’s dominance in global trade is being challenged, particularly in developing countries, due to the rivalry between the United States and China.
In Argentina, where long-term planning is hindered by skyrocketing inflation and political complexities, the yuan offers a quick, short-term solution to keep production lines running.
China recently allowed Argentina to utilize over half of an US$18 billion swap line to support trade between the two countries.
Over 500 Argentine companies have requested to pay in yuan for imports, including electronics, auto parts, and textile equipment.
The Argentine Central Bank has approved Chinese currency payments for imports worth US$2.9 billion.
Transactions involving yuan on the Argentine foreign exchange market reached US$285 million in the first ten days of June, doubling the total for May.
Whirlpool, having invested US$52 million in a factory outside Buenos Aires, is among the companies in Argentina now considering using yuan instead of dollars.
To ensure a continuous supply of crucial electronic components, the company contemplates paying for some pre-production materials in yuan after experiencing temporary shutdowns due to raw material shortages.
Other Argentine companies, such as Mirgor and Newsan, have already made imports totaling US$630 million in yuan between May and August.
With the peso losing half its value in the past year, the country’s dollar reserves are at their lowest since 2016.
As Argentina negotiates with the International Monetary Fund (IMF) to advance its US$44 billion rescue program, the urgency to pay yuan bills coincides with the country’s struggle to meet IMF targets amid a severe drought that destroyed US$20 billion worth of crops earmarked for export, exacerbating the dollar shortage.
China’s promotion of the yuan as an alternative to the dollar aligns with its efforts to expand its role in the global financial system, including opening up its financial markets and reducing regular foreign exchange market interventions.
Argentina’s adoption of yuan payments reflects its pressing need for solutions amidst challenging economic circumstances.
With information from Bloomberg