The Central Bank of Argentina (BCRA) has agreed to extend free access to currency swaps with China by 47 billion yuan (equivalent to USD 6.5 billion). This was agreed after a meeting between central bank governor Miguel Pesce and China’s Ban Gongsheng on Wednesday morning. In this highly volatile scenario, an extension would be key to strengthen intervention in the parallel exchange market and face imports.
President Alberto Fernández announced this morning from Beijing that China had “once again listened to our claims and extended access to the $6.5 billion swap.”
“We just finished a very good meeting with President Xi Jinping. We raised the issue with him, and once again the Chinese government listened to our requests and gave us very important What he did was to expand its use. [currency] The exchange was already authorized. “We asked for $5 billion and they gave us $6.5 billion. It’s a big relief for Argentina because these are reserves that will go into Argentina from now on,” the president said in an interview on Radio 10 this morning.
A currency swap is a currency exchange between BCRA and the People’s Bank of China (BPC). The first agreement between the two central banks was signed in 2009. The second agreement was signed in 2014, updated in 2017, and supplemented in 2018. The third agreement was signed in August 2020 and renewed this year.
Why currency swap extensions are important
“The first tranche of swaps was key to maintaining imports and even complying with the International Monetary Fund (IMF) in the first half of this year,” economist Pedro Gante said.
Ganthe also said that very little of the original US$5 billion (less than US$1 billion) remains, so the activation of this second tranche is essential, especially in a scenario of such strong dollarization. Pointed out. ”
“This is important news given the critical situation in BCRA’s reserves and the time between this Sunday’s elections and the election transition in December. This is an indirect supply of foreign exchange; It could help cushion the forces that weigh on demand and prompt currency collapses,” said Fabio Rodríguez, economist and director of MyR Consultores.
Sebastian Menescardi, an economist at consultancy Eco Go, said the activation of the new currency swap was good news, but warned that the money would have to be returned and that would mean further fiscal commitments for next year.
“It’s a relief for BCRA from a political competition standpoint, but it remains to be seen how it will be repaid,” he notes.
