By Kandy Wong

Argentina will allow commercial banks to open customer accounts in yuan, as the Chinese currency makes another step in its global use, with the South American nation battling a dwindling supply of US dollars.
China has long been pushing for internationalisation of the yuan, while the move also highlights the dire financial situation of the second-largest country in South America.
“The Central Bank of Argentina incorporated the yuan as an accepted currency for deposit-taking in savings and current accounts,” the central bank said in a statement on Thursday.
The decision follows approval by the country’s securities regulator that allows the issuance of securities in the local market that are settled in yuan.
“Opening yuan accounts could attract more people and enterprises to exchange Argentinian peso to yuan, as more or less a ‘safe haven’ currency, instead of exchanging all of their local currency to US dollars,” said Dong Jinyue, a senior China economist at BBVA Research.
“The diversification of foreign currency exchange will surely help alleviate the US dollar shortage in Argentina because US dollars become not the only foreign currency to exchange.”
Argentina started to pay for Chinese imports in yuan rather than US dollars in April as China pushes for greater use of its currency in bilateral trade settlements.
“Given rising geopolitical tensions, China is growing increasingly uncomfortable with the pre-eminent role of the US dollar in conducting international trade,” said Stephen Olson, a senior research fellow at the Hinrich Foundation.
“While it is not conceivable that the yuan could replace the US dollar as the global reserve currency, China is pursuing a long-term strategy to internationalise the yuan … the recent announcement by the Argentine Central Bank is just another small step in that direction.”

A report by credit insurance company Allianz Trade on Thursday said that recent efforts by some emerging market countries to diversify their currency reserves away from the US dollar raised questions about the beginning of the end of its dominance.
“However, the dynamics affecting the US dollar’s role as reserve currency … will take much longer than current headline news on de-dollarisation insinuate,” chief economist Ludovic Subran said in the report.

The report explained that the private sector’s use of the US dollar for trade and investment, rather than the portfolio allocation choice of central banks, will shape the currency’s status.
But the role of the US dollar in private sector transactions remained “virtually unchanged”, according to the report, with only slight adjustments based on foreign exchange turnover, bond issuance by non-financial companies and payments via the Swift financial messaging system.

Argentinian Economy Minister Sergio Massa met with Chinese Minister of Commerce Wang Wentao in June, with Beijing indicating that it was ready for a deepening of exchanges and conversations with Argentina to push trade and economic development.
Earlier this month, the People’s Bank of China and Argentina’s Central Bank signed an agreement for a 130 billion yuan (US$17.9 billion), or 4.5 trillion peso, bilateral currency swap over three years.
Also on Thursday, the Buenos Aires Herald newspaper reported that Argentina will make its US$2.7 billion payment to the International Monetary Fund on Friday using special drawing rights from the international financial institution and freely available yuan from the country’s currency swap with China.
“This way, we comply with what we agreed upon with the fund and, at the same time, we don’t use [international] reserves, nor we put the central bank’s reserves at risk,” economy ministry spokeswoman Gabriela Cerruti told a press conference, according to the newspaper.

This article originally appeared at https://www.scmp.com/