IN-DEPTH: Argentina Starts Allowing Bank Accounts in Chinese Yuan, But Locals Prefer Dollars

A Chinese yuan note in a file photo. Thomas White/Reuters

The ongoing shortage of U.S. dollars in Argentina has reached a new milestone, and officials are taking drastic steps to refill depleted foreign currency coffers.

On June 29, Argentina’s Central Bank announced it would allow residents and businesses to hold accounts in China’s RMB yuan. The historic decision marks a departure from using solely the U.S. dollar as an official reserve currency.

The move comes amid the South American country’s ongoing economic crisis. An acute greenback shortage, soaring poverty rates, high unemployment, and inflation have compounded this.

Subsequently, Argentinian officials are using Chinese currency as a life raft to cling to its remaining supply of U.S. dollars.

Argentina's President Alberto Fernandez attends the National Flag Day event at the Museum of the National Flag in Iguala, Guerrero state, Mexico, on Feb. 24, 2021. Henry Romero/Reuters

Argentina has endured more than its fair share of economic downturns over the past two centuries. But the COVID-19 pandemic marked the beginning of its worst fiscal tailspin in decades. One that the current administration has failed to recover from.

In June, an Argentine economist predicted the country’s national inflation would hit 147 percent this year. Concurrently, the anchor food-producing nation’s GDP is expected to fall by up to 3.5 percent.

Economists claim Argentina’s move to hitch its economic wagon to China’s yuan is a hallmark of Peronist economic strategy. The administration of President Alberto Fernandez has doggedly stuck to a plan that prioritizes near-term relief over sustainable, long-term solutions.

Yet while Argentine officials tout the yuan as an economic silver bullet, residents and analysts say many prefer to hold their money in greenbacks.

Further, some insiders allege the move is another step forward in the “de-dollarization” movement spreading throughout the region.

Replacing the U.S. dollar as the world’s go-to reserve currency is a goal Beijing has been anything but subtle about.

Blue Streak

You can find them in every storefront and street corner in Buenos Aires. The “black market” exchange of U.S. dollars is thriving to the point there are now 12 different rates.

In the downtown neighborhoods of San Telmo and Monserrat, men wearing fanny packs stand near plazas and popular tourist landmarks, repeating the word “dollars” to indicate they are available for a quick greenback to pesos cash swap on the spot.

At a preferential rate, of course.

The highest of these unofficial exchanges is what’s known as the “blue dollar,” which is nearly double the official government rate. It’s called a “blue” dollar since some of the newer U.S. $100 notes have a bluish tint.

And the crisp new bills are as valuable as gold to locals.

Officially, $1 dollar gets you 264 Argentinian pesos. However, the blue dollar rate will get you up to 490 pesos for a buck. Comparatively, 1 yuan costs locals just under 37 pesos. The price tag for Argentinians to hold yuan is certainly less, but the hunt for dollars remains unwavering.

Hundred-dollar bills are counted out by a banker in Westminster, Colo., on Nov. 3, 2009. Rick Wilking/Reuters

Because dollars are still considered the gold standard in reliability and are worth considerably more in the foreign exchange market.

“Argentinians don’t use the yuan. They don’t really know much about the yuan,” Fabian Calle told The Epoch Times.

Mr. Calle is a former Argentinian government official and political analyst.

He said beyond creating options for residents to buffer their savings with something other than pesos, the current administration is trying to “convince” other Latin American governments to use the yuan in trade and business transactions.

“But at the same time, they [Argentinian government] try to get dollars to put into the local market to stop [peso] devaluation,” he said.

For the embattled Fernandez administration, it’s a two-birds, one-stone scenario. It corks the hemorrhage of dollars going out the door while boosting the yuan’s street credibility.

Nevertheless, Calle maintains most locals would prefer to hold accounts in U.S. dollars and some locals agree with him.

“Nobody wants yuan. People want to hold their money in dollars. This push for Argentinians to drop dollars for yuan is political,” Alvaro Gomez told The Epoch Times.

Like many of his fellow Buenos Aires residents, the retired Gomez keeps a tight leash on dollars whenever he can find them. He also says he has no plans to open a bank account in Chinese currency.

“You hear it on the news. The [central] bank tells us we can have these accounts, and we’re supposed to be relieved. But there was never any demand for yuan. This is just a scheme for the government to pay its debts,” he said.

Business Is Booming

While most civilians are hesitant to ditch their dollars for yuan, business transactions done in Chinese currency in Argentina are at an all-time high.

In the first 10 days of June, Argentina’s foreign exchange transactions in yuan totaled a record 28 percent. That’s a considerable spike from just 5 percent in May.

For the first time, the country used yuan to cover part of its $2.7 billion loan payment to the International Monetary Fund (IMF), which was due on June 30.

President Fernandez’s administration used 1 billion yuan to cover part of the debt payment. This was confirmed by presidential spokeswoman Gabriela Cerruti.

On June 29, Cerruti said the payment would be made “partly with special drawing rights from the treasury and partly with yuan, without using central bank reserves.”

Reports also claim upwards of 500 Argentine companies are requesting to pay for imports in Chinese currency.

Meanwhile, in the streets, you won’t catch many people doing business in yuan.

“It’s getting harder to buy dollars, but everyone wants them,” Lucilla Martinez told The Epoch Times.

Like Gomez, Martinez keeps her eyes open for opportunities to purchase dollars. For locals living in the capital, having friends or family working in the tourism industry is a sure bet for gaining access to dollars.

“Most Americans don’t even know how valuable dollars are when they visit,” Martinez said.

When asked if she‘d consider exchanging pesos for yuan instead of dollars, she scoffed, “Why? China is trying to increase the reach of its currency, but Argentinians need a sure thing. I don’t know anyone who’d trade dollars or pesos for yuan.”

Mr. Calle echoed the sentiment. “People don’t feel a lot of confidence in using the yuan because it’s unknown to them.”

Opportunity Knocks

In the upcoming presidential election, one Argentinian candidate has pinned his campaign hopes on the promise of flooding the nation with U.S. dollars.

Right-wing congressman and political maverick Javier Milei has promised to eliminate the country’s deflated peso in favor of using dollars as the official currency.

“If I become president, I promise I will dollarize the economy. And if the political caste doesn’t let me do it, then I will call a referendum on the matter,” Milei said during a press event.

A giant US dollar bill with the face of Argentine congressman Javier Milei is seen before the presentation of his book "El fin de la inflacion" (The end of inflation) at the Buenos Aires International Book Fair, on May 14, 2023. Luis Robayo/AFP via Getty Images

Argentina is a pivotal proving ground for Beijing’s goals to dethrone the dollar as the leading global reserve currency.

In March, Brazil’s government announced it would begin using the yuan for financial transactions between the nations.

The news raised eyebrows in Washington while economists hastily assured the dollar’s hegemony in the West isn’t so easily shaken. But that hasn’t deterred Beijing from making progress by inches toward its dream of a world dependent on the yuan.

Countries that have boosted trading in yuan this year, besides Argentina and Brazil, include Bangladesh, Russia, and Iran.

But there’s a critical stumbling block China needs to navigate. Financial analysts say part of the problem with Beiing establishing itself as a dependable reserve currency is the reality that no one wants to buy their bonds.

“It is very hard to create a reserve currency without attractive reserve assets. China has a problem. It wants foreigners to buy bonds,” Jens Nordvig, founder and CEO of Exante Data, said.

But foreign investors have continued unloading Chinese bonds since the onset of the Russia-Ukraine conflict. Most of this has been driven by fear that China’s relationship with Moscow could facilitate sanctions-related blowback for asset holders.

In this way, Argentina has presented a unique opportunity for China to prove its currency as an economically viable option for countries with diminished dollar reserves.

Meanwhile, locals are happily and patiently sourcing out opportunities to purchase dollars.

“The peso is done at this point, but the dollar is a sure thing. Let the politicians bet their money on China,” Gomez said.