The yuan is on the rise. After Russia and Brazil, it is the turn of Argentina and India to adopt the Chinese currency.
Argentina pays its debts to the IMF in yuan
Argentina joins the league of countries that are increasing the share of the yuan in their economies while reducing their dependence on the dollar.
While dollarization was predicted, it is finally the Chinese currency that settles in this country plagued by hyperinflation.
The Central Bank of Argentina come indeed to announce that it authorized the banks to hold accounts in yuan. It is a measure “complementary to the government’s decision to allow trading in yuan-denominated securities” in the Argentine financial markets.
At the same time, the government has also just repaid to the IMF a debt equivalent to one billion dollars in yuan for one term, a first. There are still 45 billion dollars to be reimbursed…
Argentina’s yuan comes from a currency swap between the Chinese and Argentine central banks in early June. The equivalent of 18 billion dollars (130 billion yuan) was exchanged for 4.5 trillion pesos, for a period of three years.
According to data from the Electronic Open Market, the yuan’s share in the foreign exchange market has already reached a record high of 28 percent of total transactions in one day.
Argentina is seeking to address a severe shortage of dollar reserves caused by falling exports. In question, the worst drought in decades. Losses due to lack of rain would amount to 20 billion dollars.
This trend towards yuanization is not isolated to Argentina. In Russia, more than 70% of trade between Russia and China is done in Russian ruble or yuan.
Even India is getting into it.
India pays Russia in yuan
It’s no secret that India is taking advantage of the Western embargo on Russian oil to buy it cheap. The Hindu subcontinent has become the largest importer of Russian oil.
India was able to pay for Russian oil in rupees for some time. Unfortunately, New Delhi does not produce enough of the things that would interest Russia. So much so that Moscow finally insisted on being paid in yuan in order to be able to buy Chinese electronics (mainly PCs and smartphones).
Indian Oil Corp, the country’s biggest buyer of Russian crude oil, in June became the first state refiner to pay for some Russian purchases in yuan.
At least two of India’s three private refiners also pay for some Russian imports in yuan without admitting it so as not to incur the wrath of the West. None of the Indian private refiners responded to requests for comment from Reuters.
“The first preference is to pay in dollars, but refiners sometimes pay in other currencies, such as the dirham or the yuan, when asked by the sellers”says a government source.
This source declined to identify Indian companies that pay for Russian oil in yuan. The reason being that the Indian banks that make these payments fear sanctions from Washington. No longer having access to the Dollar can indeed prove fatal for an international bank…
What about the BRICS currency?
Dedollarization is in the air. Last month in New Delhi, Duma deputy speaker Alexander Babakov said Russia was spearheading the development of a new reserve currency.
A few weeks later, in Beijing, Brazilian President Luiz Inàcio Lula da Silva went further:
“I wonder every night why all countries have to trade in dollars.”
This new currency will be used to settle cross-border trade between the BRICS. But also to the ten countries which should join the club on the occasion of the next BRICS summit in August.
The website watcherguru even reports that 41 countries would be ready to accept the new BRICS currency (compared to 19 in April). “In total, 22 new countries (many African) have expressed their desire to join the bloc and abandon the US dollar”can we read.
However, no reserve currency should be unveiled this summer. India’s Finance Minister, Mr. Jaishankar recently said that a “currency for the BRICS has not yet been decided”.
The BRICS “remain focused on expanding the use of their own currencies in trade”, he added. We will probably have to wait for the arrival of new members (Saudi Arabia, Iran, United Arab Emirates, Argentina, Egypt, Algeria) to move forward on the question of a new currency.
Indeed, it would seem that the plan is first to create powerful regional currencies. Saudi Arabia and the United Arab Emirates could take the lead in the Arab world. Brazil and Argentina also have this ambition.
While the yuan seems to be plugging the holes for now, it’s unclear whether the Middle Kingdom’s ambition is to replace the dollar as a store of value. Unless it agrees to lift its capital controls and open its markets to foreign investors.
Finally, and once again, adopting Bitcoin as an international reserve currency seems like a no-brainer.
A currency at the same time as an uncensorable payment system offering privileges to no one. Moreover, in absolutely fixed quantities. This should be the mainstay of international trade.
Receive a digest of news in the world of cryptocurrencies by subscribing to our new service of daily and weekly so you don’t miss any of the essential Tremplin.io!
