China, Argentina to conduct trade in Chinese currency

China and Argentina in Currency Swap

By Jude Webber
Financial Times, London
Tuesday, March 31, 2009

http://www.ft.com/cms/s/0/eba6405c-1d7e-11de-9eb3-00144feabdc0.html

SANTIAGO, Chile -- China, which is pushing to end the dominance of the dollar as a worldwide reserve, has agreed a 70 billion renminbi currency swap with Argentina that will allow it to receive renminbi instead of dollars for its exports to the Latin American country.

Xinhua, the official Chinese news agency, said the deal was signed on Sunday by Zhou Xiaochuan, governor of the People's Bank of China, and Martín Redrado, Argentine central bank president, in Medellín, Colombia, where they are attending a meeting of the Inter-American Development Bank.

An Argentine official confirmed a deal had been discussed and said the fine print was being worked out and negotiations were "very advanced."

Beijing has signed 650 billion renminbi ($95 billion, E72 billion, L67 billion) of deals since December with Malaysia, South Korea, Hong Kong, Belarus, Indonesia, and, now, Argentina in an attempt to unblock trade financing that has been severely curtailed by the crisis.

Gordon Brown, UK prime minister, told a summit in Chile at the weekend that this week's Group of 20 meeting in London, which both China and Argentina will attend, needed to ensure vast trade credits were unlocked to help get the world economy back on its feet. The World Bank estimates as much as $300 billion (E227 billion, L210 billion) could be needed.

China has suggested replacing the dollar with an enhanced version of the International Monetary Fund's unit of account, the special drawing right or SDR. The dollar's future as the world's reserve currency will be on the G20 agenda.

Economists say the SDR plan is unfeasible for now but see Beijing's currency swap deals as pieces in a jigsaw designed to promote wider international use of the renminbi, starting with making it more acceptable for trade and aiming at establishing it as a reserve currency in Asia, something that would also enhance China’s political clout.

The deals underscore China's loss of faith in the US currency amid the fallout from the financial crisis. The Argentine accord will also boost China's financial presence in Latin America.

Mr Redrado voiced support for China's call for a new currency reserve regime at his meeting with Mr Zhou. "One of the issues was this idea to incorporate other options to the dollar. There was a lot of consensus on this," the Argentine official told the Financial Times.

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