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Argentina to pay for China imports in yuan, ditching US dollar

Decision aims to ease outflow of dollars, Economy Minister Sergio Massa says during an event following a meeting with Chinese ambassador Zou Xiaoli.

AFP

Argentine Economy Minister Sergio Massa [R] and Chinese Ambassador to Argentina Zou Xiaoli shaking hands after signing an agreement to activate the swap between Argentina and China in Buenos Aires. / Photo: AFP

Argentina will pay for Chinese imports in yuan instead of dollars in order to preserve its international reserves, Economy Minister Sergio Massa has said.

The South American country will be able to "programme a volume of imports in yuan worth [the equivalent of] more than $1 billion from next month, which will replace the use of Argentina's dollars," said Massa on Wednesday, standing alongside China's ambassador in Buenos Aires, Zou Xiaoli.

The decision aims to ease the outflow of dollars, Massa said during an event following a meeting with the Chinese ambassador as well as with companies from various sectors.

The decision comes as the South American nation battles critical levels in its dollar reserves amid a sharp drop in agricultural exports caused by a historic drought, as well as political uncertainty ahead of elections this year.

In November last year, Argentina expanded a currency swap with China by $5 billion, seeking to strengthen Argentina's international reserves.

The agreement will allow Argentina "to work on the possibility" of advancing the rate of imports, Massa added, with yuan-denominated import orders being authorised in 90 days rather than the standard 180 days.

Argentina seeks to realign bilateral ties as trade deficit with China grows

Drowning currency

Argentina's government on Tuesday accused the country's rightwing opposition of fuelling a dramatic erosion of the peso against the dollar, and ordered an investigation.

The peso stood at 227 to the dollar at the official exchange rate on Tuesday, but reaching more than double that on the parallel "blue" market.

The slide started last week after several days of pressure on the peso in a period of pre-election uncertainty in a country with exchange controls in place to limit the effects of a financial crisis and rampant inflation of more than 100 percent year-on-year.

Economist Maria Castiglioni told the TN broadcaster the devaluation was partly the result of Argentines seeking "refuge" in the US dollar to protect their purchasing power.

Massa said the decision to pay in yuan "improves the perspective of Argentina's net reserves."

It also "allows us to maintain the level of activity, the volume of imports, the pace of trade between Argentina and China and the levels of economic functioning that Argentina needs" following a poor year for domestic agriculture, and thus exports, amid persistent drought.