The Chinese Yuan is gaining steam as the U.S. dollar might be losing ground. Argentina, which formally applied to join the BRICS alliance is looking at the Chinese Yuan for trade settlement sidelining the U.S. dollar. Over 500 companies in Argentina have requested the government to allow them to settle cross-border transactions with the Chinese Yuan. The Latin American country has a shortage of dollars and China is offering emergency aid with its native currency to continue business.
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The 500 companies come from a wide range of industries such as electronics, textiles, automobile parts, oil, and mining, among others, confirmed the Argentine customs agency. Around $2.9 billion worth of imports has been settled with the Chinese Yuan by Argentina in Q2 of 2023.
BRICS: Argentina Ditches the U.S. Dollar, Pays With Chinese Yuan
Recent data from Argentina’s prominent exchange Mercado Abierto Electrónico indicated that the Chinese Yuan transactions reached 28% of global trades. The number is a 5% jump from the previous month, signaling the U.S. dollar is facing a decline in settlements.
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“The central bank doesn’t have dollars so it needs the emergency aid China is offering. For Argentina, its currency ties to China represents an emergency, but for China, it’s a point of leverage to take advantage of a geopolitical opportunity,” said trade economist Marcelo Elizondo to Bloomberg.
In addition, China allowed Argentina access to over half of the $18 billion currency swap line making transactions easier to settle. The swap line bolstered trade between the two nations at a time when Argentina faces a shortage of the U.S. dollar. “The only option it has left is to access the Yuan from the China swap line,” said economist Elizondo.
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Argentina is looking to join BRICS and accept the new currency for international trade, ditching the U.S. dollar. BRICS aims to create a new currency and put it to work for cross-border transactions challenging the U.S. dollar’s supremacy.
The BRICS summit will be held in South Africa in August where the formation of the currency will be decided. BRICS is an acronym for Brazil, Russia, India, China, and South Africa.