U.S. dollars are so hard to come by in Argentina that Whirlpool Corp., the U.S. appliance giant, is considering paying in Chinese yuan to import parts for its new factory.
Across the South American country, the dwindling supply of dollars is prompting companies to embrace a currency that otherwise plays a secondary role in international trade. This trend highlights both Argentina’s dire economic situation and China’s ambitions for the yuan.
Opportunity for Beijing
The central bank has no dollars, so it needs the urgent help that China is offering. For Argentina, its currency ties with China represent an emergency, but for China it is a point of leverage to exploit a geopolitical opportunity.
The dollar’s supremacy in global trade is undercut by fragmentation, particularly in developing countries, caused by the US-China rivalry. Russia’s economic isolation following its invasion of Ukraine has also opened up non-dollar trade routes to avoid sanctions.
Neighboring Brazil, for example, also plans to use more yuan, following a decision by President Luiz Inacio Lula da Silva to seek alternatives to the dollar.
Quick, short-term solution
In Argentina, however, the yuan represents a quick, short-term fix to keep production lines moving as long-term planning is tested by galloping inflation.
The only option it has left is to access the yuan from the swap agreement with China.
More than 500 Argentine companies have asked to pay for their imports in yuan, including makers of electronics, auto parts and textiles, as well as oil and mining companies, according to the country’s customs service.
Authorities have approved payments for imports in Chinese currency equivalent to $2.9 billion, according to the central bank.
In the first 10 days of June, yuan trading in Argentina’s foreign exchange market amounted to about $285 million, double the amount in all of May.
Also, the yuan’s share of trading in Argentina’s foreign exchange market recently hit a daily record of 28 percent, up from just 5 percent last month, according to data from Mercado Abierto Electrónico, one of the country’s largest exchanges.
Companies are waiting in line
Whirlpool Latin America plans to export approximately 70% of the products it produces in Argentina.
If it goes ahead with the plan, Whirlpool will join the ranks of Argentine companies such as Mirgor and Newsan, which paid for $630 million worth of imports between May and August using yuan, according to Argentina’s customs service. And other companies are queuing for yuan, as the central bank forces businesses to seek dollar financing abroad or wait months to tap the local currency market.
Argentina’s currency has lost half its value in the past 12 months, the worst performance among emerging markets during that period. The central bank’s dollar reserves are at their lowest level since 2016, while excluding the swap line, gold and multilateral financing, its liquid cash reserves are actually in negative territory.
China’s economic influence is steadily expanding
The People’s Bank of China has signed currency swap agreements with about 40 countries over the years and is steadily expanding its fledgling domestic network of the yuan cross-border payment system, known as CIPS.
Argentina’s rush to pay yuan bills comes as government officials negotiate with the International Monetary Fund for $44 billion in aid. But the country is not meeting any of the IMF’s key targets, after a record drought caused the loss of about $20 billion worth of crop exports, exacerbating the dollar shortage.
