International Sharp Review | What Does Argentina's First Repayment of Foreign Debt in RMB Explain? Settlement | RMB | International
On June 30th local time, Argentina repaid the IMF's $2.7 billion foreign debt due that day using the International Monetary Fund's Special Drawing Rights and RMB settlement method. This is the first time Argentina has used the Chinese yuan to repay its external debt. The day before, the Argentine central bank announced that it would include the Chinese yuan in the currency that can be accessed and deposited in the country's banking system, and approved domestic financial institutions to open RMB savings accounts. Argentine Central Bank Governor Pess é said, "Like many countries around the world, Argentina has always been optimistic about the internationalization of the renminbi.".
Since the beginning of this year, financial cooperation between China and Argentina has been accelerating. In April, Argentina started using RMB to pay for goods imported from China; In early June, Argentina and China renewed a currency swap agreement with a scale of 130 billion yuan, and increased the freely usable limit from 35 billion yuan to 70 billion yuan; Afterwards, the Argentine National Securities Commission approved the issuance of securities products settled in RMB in the local market... A series of operations mean that financial cooperation between China and Argentina has entered a fast lane.
Expanding financial cooperation between China and Arab countries is a reflection of the healthy bilateral economic and trade relations. Currently, China is one of Argentina's most important trading partners. In 2022, the bilateral trade volume between China and Afghanistan reached 21.37 billion US dollars, breaking through the 20 billion US dollar mark for the first time. Under the premise of respecting market autonomy, Chinese and Arab enterprises should use their own currencies more for settlement in bilateral trade and investment, which will reduce exchange costs and exchange rate risks, and help enhance bilateral trade.
Any cooperation is mutually beneficial, and the same goes for financial cooperation between China and Arab countries. For Argentina, expanding the use of the renminbi can help solve the most pressing domestic problems. In recent years, Argentina has been facing a shortage of dollars. At the end of 2022, Argentina's external debt reached $276.7 billion, but its foreign exchange reserves were only $44.6 billion. The recent dry weather has had a significant impact on Argentina's agricultural export income, and the shortage of US dollars has become more prominent. Increasing the use of the renminbi can help Argentina save a significant amount of US dollars, greatly alleviate the pressure on foreign exchange reserves, and maintain economic activity.
For China, exchanging local currency with Argentina also brings benefits. According to statistics, in April and May this year, Argentina's imports settled in RMB accounted for 19% of the total imports in these two months. Starting from May this year, Argentina is expected to use approximately 790 million to 1 billion US dollars worth of Chinese yuan to pay for imported goods from China. In the case of a shortage of US dollars in Argentina, using RMB for import settlement can ensure China's exports to Argentina; Using RMB to repay debts can help Argentina avoid debt defaults, maintain macroeconomic stability, and enhance market confidence. The stable economic situation in Argentina is undoubtedly an indispensable condition for China Argentina economic and trade cooperation.
In addition, the Argentine central bank's unprecedented inclusion of the Chinese yuan in the country's banking system as a deposit and withdrawal currency, approval of Argentine financial institutions to open RMB accounts, and use of RMB for bond settlement can promote Chinese enterprises to expand their investment in Argentina, help reduce financing and operating costs, and promote local development, with a profound impact.
In the long run, the significance of strengthening financial cooperation between China and Arab countries goes beyond bilateral cooperation. Argentina has long been plagued by external debt problems and is closely related to the hegemony of the US dollar. Like many other Latin American countries, Argentina has been exploited by the United States' arbitrary monetary policy. In 2016, the continuous interest rate hikes of the US dollar caused severe capital flight and currency depreciation in Argentina. Due to helplessness, the Argentine government had to borrow from the IMF. But it's like opening Pandora's box, causing Argentina to sink into a debt quagmire. Reducing dependence on the US dollar is an important step for Argentina to break the dominance of the US dollar.
As the third largest economy in Latin America, Argentina's approach has a demonstrative effect. At present, with the promotion of countries such as Brazil and Argentina, other Latin American countries have proposed the concept of "de dollarization". Venezuelan President Maduro has stated his intention to initiate the process of eliminating the hegemony of the US dollar; Bolivian President Ars é has stated that he wants to explore the possibility of using the Chinese yuan for trade settlement... This reflects the desire of many developing countries to achieve financial diversification and pursue independent and independent development. As Oscar Rojas, an economics PhD at the National Autonomous University of Mexico, said, "multipolarity" is replacing the United States' "unipolarization". As the article "The US dollar hegemony is on the verge of collapse" published in The Spanish newspaper suggests, the dominance and hegemonic position of the US dollar in the world is not unshakable.
