Brazil proposes yuanization to Argentina

By Anna Koroleva

The Brazilian Finance Minister Fernando Addad said that Brazil has offered Argentina to use the yuan as a guarantee instrument in bilateral trade. Thus, TASS reports, the Chinese currency can replace for these two countries the American one, which is still used. The state bank Banco do Brasil will act as a guarantor for trading operations.

“We have already submitted to the Argentine government a proposal to guarantee Brazilian exports in yuan from Banco do Brasil,” he said during a press conference. As the minister clarified, the question is that the State Bank of Brazil would act as a guarantor for trade operations. According to Addad, such a scheme ensures the interests of national business and satisfies the requirements of the regulator.

In late April, Argentine Economy Minister Sergio Massa said that with limited dollar reserves, the country was using a swap provided by China to pay for imports in yuan rather than dollars. And in June, Buenos Aires used the yuan for the first time to pay off debt to the International Monetary Fund.

The transition of trade of a number of countries to Chinese yuan is a logical continuation of the PRC's policy to reduce dependence on the dollar, both China itself and its partners, Andrey Kochetkov, a leading analyst at the Otkritie Investments global research department, is sure.

Over the past couple of decades, he says, China has become Latin America's main trading partner. The closest ties were established with Venezuela and Brazil. However, China's trade interests do not end there. Argentina plays a significant role in the global food market. Accordingly, the PRC is interested not only in increasing exports to this country, but also in increasing food imports to ensure its own security.

Since Buenos Aires is experiencing certain difficulties in obtaining dollar cash, the yuan is becoming one of the ways to overcome financial problems. In particular, the analyst recalls, Beijing provided swaps in yuan, which Argentina has already used to pay its debts to the IMF.

Also, Argentina can become one of the largest recipients of Chinese investment in the framework of the strategic initiative "One Belt - One Road". Accordingly, the yuan is becoming a more accessible currency for Buenos Aires and the conversion of trade with neighboring countries into this currency seems logical, especially since Brazil is also increasing its economic ties with China.

For China itself, such a development of the situation will help expand the zone of use of the yuan and increase the geopolitical role in the world, says Andrey Kochetkov. That is, investment in infrastructure, energy and other areas of Latin American countries is also investment in China's own development.

Of course, the analyst notes, such actions cause discontent in Washington, but Beijing's economic "carrot" so far surpasses Washington's "stick" in its attractiveness. Therefore, Argentina will not be the last country to convert part of its foreign trade into Chinese currency. In addition, its use will allow to bypass various sanctions issues with other countries, including the Russian Federation.

One way or another, Mikhail Zeltser, an analyst on the stock market at BCS Mir Investments, is sure that no impact from this news on the markets is expected. There is a crisis in Argentina, the country is in a state of constant default, and in the October presidential elections, an opposition politician can take the post of head, and he even has proposals for the complete dollarization of the system.

There are too many unknowns, and the volume of bilateral ties that Brazil proposes to transfer from the dollar to the yuan is insignificant for the international settlement market, the expert adds. Although Argentina is one of the first candidates for the expansion of the BRICS, it would be more profitable for the countries of the group to pay in friendly currencies.

The yuan has already become much more accessible than the dollar, which is why it is the Chinese currency that is actively gaining popularity and becoming an instrument of financial confrontation for the anti-Western coalition, notes Nikita Dontsov, a political scientist and head of the Influence communication group. The yuan looks attractive against the backdrop of the dollar and the euro, which are in the zone of inflationary risks and economic recession at the same time.

But, despite this, the political scientist is sure, the main advantages of the yuan lie in the political plane, and not economic, as well as the course towards de-dollarization - this is more a protest against the "harmful" US policy, and not an economic necessity.