The federal government signed yesterday an agreement for an US$11 billion swap operation between the countries’ Central Banks over three years, which will allow Argentina to pay Chinese imports with the yuan currency. The swap will “allow the flow of reserves to stabilize”, Cabinet Chief Jorge Capitanich said.

Xi in Argentina - To last three years

Saturday, July 19, 2014

Currency swap operation for US$11 B signed

The federal government signed yesterday an agreement for an US$11 billion swap operation between the countries’ Central Banks over three years, which will allow Argentina to pay Chinese imports with the yuan currency. The swap will “allow the flow of reserves to stabilize”, Cabinet Chief Jorge Capitanich said.

Through the agreement, Argentina’s Central Bank will be able to ask China’s Central Bank disbursements of up to 70 billion yuans and deposit the equivalent in pesos, with a dead-line to reinstate the funds in up to 12 months. The yuan can be currently traded for dollars, euros or any currency in the international markets and that has lead to several monetary authorities to invest part of their reserves in the Chinese currency.

“The objective is to improve the financial conditions in order to boost economic development and trade between both countries,” the Central Bank said yesterday in a press release. “The agreement represents an important tool that will allow the Central Bank to have an additional support to implement its financial and monetary policies.”

Argentina signed a similar deal with China in 2009 which ended three years after without being used. The agreement was for 70 billion yuans or 38 billion pesos, a lower figure, and had more limitations regarding uses of the funds and deadlines, all of which have been improved according to the Central Bank

“Costs have been reduced, as well as improving conditions of usage of the swap and dead-lines. The improvements are based on the internationalization process of the yuan reached on the past few years. It’s one of the most important reserve currencies worldwide and its volume of payments have exceeded other currencies,” the Central Bank said.

Meanwhile, when addressing reporters at the government house yesterday, Cabinet Chief Jorge Capitanich explained the swap’s interest rate President Cristina Fernández de Kirchner set up yesterday with her Chinese counterpart Xi Jinping was of “six to seven percent.”

“The country is more and more integrated in the strategic operations that allow the development of productive capacity,” Capitanich said blasting sectors that question Argentina’s alleged international “isolation.”

Stringent import and capital controls imposed by Fernández de Kirchner’s government have reduced foreign investment and forced the Central Bank to drain its foreign reserves to shore up an ailing currency. Head of the Central Bank Juan Carlos Fábrega said on May he expects reserves will remain stable and end the year at US$28 billion, a figure close to the US$29.671 billion level.

“The agreement will help to reach stability on the exchange rates at a time when we suffer speculative attacks from ‘vulture funds’,” Fernández de Kirchner said yesterday.

Herald with Reuters