Argentina Turns to the Yuan Amid Dollar Shortages

Argentina’s use of Chinese yuan is soaring as dollars run short, and a top US manufacturer may join the trend

Story by fdemott@insider.com (Filip De Mott) • Friday

• Argentine companies are increasingly turning to China’s yuan amid dollar shortages, Bloomberg reports.
• US giant Whirlpool is also considering use of the yuan to buy parts for a factory in Argentina.
• “We’ve had to stop the factory at some points and that’s not good for business, productivity nor quality.”

(Markets Insider) – US dollars are a growing rarity in Argentina, pushing many in the country to seek out the Chinese yuan instead.

The South American county’s central bank dollar reserves are at their lowest level since 2016, due in part to a drought that destroyed about $20 billion in crop exports, according to Bloomberg.

That has complicated international trade, given that the dollar is the most widely used currency for global transactions.

But it has opened the door for China’s yuan, which Beijing has been trying to internationalize as an alternative to the greenback. Argentina and China have had a bilateral swap agreement since 2009, and Beijing recently allowed Argentina to tap over half of a $18 billion currency swap line, Bloomberg said.

The anti-dollar drive spearheaded by Asia has spread to Europe, with France growing sour on the greenback’s dominance. Here are 6 rising threats to the buck’s supremacy of global trade.

• The dollar’s supremacy in global trade faces fresh challenges as several countries float plans to use local currencies in commerce. 
• Russia and Iran are working to create a gold-backed stablecoin, while France has pursued a trade deal with China in yuan. 
• Here are 6 rising challenges to the greenback’s dominance of international trade and investment flows.

The dollar’s dominance of global trade and investment flows is facing a slew of new threats as more and more countries draft plans to boost the use of alternative currencies.

For some time now, nations from China and Russia to India and Brazil have been pushing for settling more trade in non-dollar units – with projects ranging from the use of local currencies to a gold-backed stablecoin and a new BRICS reserve currency.

Now, even Europe appears to be jumping on the anti-dollar bandwagon, with French president Emmanuel Macron recently warning against the continent’s dependence on the greenback. 

With movements to undermine the dollar’s unipolar supremacy gathering momentum, it comes as no surprise that the buck’s status as a reserve currency eroded in 2022 at 10 times the pace seen in the past two decades, according to Eurizon SLJ Asset Management.

Strategists at the asset manager found that the greenback’s share of total global reserves fell to 47% last year, from 55% in 2021 and as much as two-thirds in 2003.

For decades, the US dollar has reigned supreme as the world’s reserve currency and is widely used in crossborder trade, especially for commodities such as oil. Thanks to its relative price stability, investors see it as a safe-haven asset in times of heightened economic and geopolitical uncertainty.

The dollar was further bolstered last year by a surge in US interest rates that made it attractive to foreign investors seeking higher yields. It surged 17% during the first nine months of 2022, but has since lost some of its shine on the prospect that the Federal Reserve may soon end its rate hikes as inflation cools rapidly. 

Against this backdrop come the latest threats to the greenback’s reign — here are 6 currency projects from across the world that are ultimately aimed at undermining the dollar’s supremacy.See More

Yuan transactions in Argentina’s currency market totaled about $285 million during the first 10 days of June, double the volume in the entire month of May. 

Meanwhile, the share of daily yuan transactions in Argentina’s FX market recently hit a record high of 28%, up from May’s high of just 5%.

The upswing comes as over 500 companies in Argentina are looking to pay for imports in yuan, according to Bloomberg.

And US giant Whirlpool may join them. The manufacturer opened a $52 million plant in Argentina last October, but the lack of dollars has disrupted activity, as it delayed imports needed to manufacture washing machines and other appliances.

“We’ve had to stop the factory at some points and that’s not good for business, productivity nor quality,” Juan Carlos Puente, president of Whirlpool Latin America, told Bloomberg.

Whirlpool did not immediately respond to Insider’s request for comment.

But Argentina hasn’t given up on the dollar. The government is discussing dollar aid from the International Monetary Fund.

And the country could go even further. The leading presidential candidate has proposed ditching the peso and fully adopting the dollar as Argentina’s local currency as a way to rein in inflation.

Source: MSN

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