Argentina and China agree on US$6.5 bn currency swap extension

The funds are the second part of the current deal that was signed in 2020 and renewed this year

Argentina’s Central Bank (BCRA) agreed to extend its currency swap with China for a free access amount of 47 billion yuan, equivalent to US$6.5 billion. This was agreed upon after a meeting Wednesday morning between Central Bank head Miguel Pesce and his Chinese counterpart, Pan Gongsheng. In this highly volatile scenario, the extension is key to strengthening intervention in the parallel exchange market and facing imports.

President Alberto Fernández announced this morning from Beijing that China “once again heeded our claims and extended the use of the swap” for US$6.5 billion.

“We just finished a very good meeting with President Xi Jinping. We raised our problems with him, and once again, the Chinese government heeded our requests and gave us very important help. What he did was extend the use of the [currency] swap we had already been granted. We asked for 5 billion dollars, and they gave us 6.5 billion, which is a great relief for Argentina since those are reserves that will now enter the country,” the president said this morning in an interview with Radio 10.

The currency swap is a currency exchange between the BCRA and the People’s Bank of China (BPC). The first agreement between both central banks was established in 2009. A second deal was signed in 2014, which was renewed in 2017, with a supplementary added in 2018. The third deal was struck in August 2020 and renewed this year.

Economy Minister Sergio Massa lauded the extension of the currency swap, calling the development “huge.” 

“This is huge news for the strengthening of Argentina’s reserves. We can also accelerate payments for imports made by small and medium companies, as well as intervene in the [exchange] market,” Massa said in a press release. 

Why the currency swap extension is important

“The first tranche of the swap was key in maintaining imports and even complying with the International Monetary Fund (IMF) during the first half of the year,” economist Pedro Gante says. 

Gante also points out that there is almost no money left of those initial U$S5 billion (less than U$S1 billion), which is why the activation of this second tranche is essential, especially “in this scenario of such a strong dollarization.”

“This is key news due to the critical situation of the BCRA’s reserves and in light of the time between this Sunday’s elections and the electoral transition in December. It is an indirect supply of foreign currency that may help to calm factors that stress the demand and encourage possible runs on the currency”, points out the economist and director of MyR Consultores, Fabio Rodríguez.

Economist Sebastián Menescaldi, from consultancy firm Eco Go, warns that although the activation of the new currency swap is good news, that money must be returned, which means more future financial commitments for next year. 

“It is a relief for the BCRA in the context of the political race, but it remains to be seen how it will be repaid,” he points out.

Originally published in Ámbito


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