Yuan vs Dollar

 China's currency, the yuan, is quietly making its way into global markets, and China is trying hard to introduce it as an alternative to the dollar. Thanks to these efforts, the yuan is rapidly gaining ground in many Latin American countries.

In recent weeks, there have been concrete indications in this direction from the southern countries of Latin America.

In Argentina, the government announced last month that its exports to China would be denominated in yuan instead of dollars to shore up its dwindling foreign exchange reserves.

And in Brazil, where the yuan has replaced the euro as the second-largest foreign exchange reserve currency, the government also announced an agreement to trade with China in both countries' currencies and avoid relying on the dollar.

These changes in Latin America's two largest economies have been identified by Bolivian President Luis Arce as a regional trend in which his country can join.

But experts also see it as a reflection of China's attempt to introduce its currency internationally, against a backdrop of growing tensions between the US and China.

He said that China can use several methods to introduce its currency in different markets. Margaret Myers, director of the Asia and Latin America program at the Inter-American Dialogue, a Washington-based regional think tank, told the BBC it was a regional trend, not something unique to Brazil and Argentina.

However, he cautioned that it remains to be seen how far this pressure on the Asian currency will go.

China has sought to introduce its own currency in Latin America after establishing itself as a major trading partner in the region.

"A Chinese Strategy"

Beijing has expressed its intention to gain a greater presence of the yuan in Latin America over the past decade after becoming a major trading partner in the region and a source of financing for some countries.

In 2015, Chinese officials signed investment and foreign exchange exchange agreements with Chile announcing the opening of Latin America's first yuan clearing bank.

The purpose of these institutions, also known as clearing houses, is to facilitate international transactions between the local currency and the yuan, without going through the dollar, as is often the case.

China has secured yuan-remuneration agreements in other regions and in February announced one in Brazil, its largest trading partner in Latin America, with bilateral trade reaching a record $150 billion in 2022.

Managed by the Industrial and Commercial Bank of China, the finance heavyweight guarantees Brazilian businessmen the instant conversion of yuan-denominated transactions into reais (Brazil's local currency). In April, Brazil settled its first cross-border transaction in an Asian currency under the payment method.

Former Brazilian Minister of Foreign Trade Velber Barral points out that with the substantial volume of bilateral trade, this mechanism can make deals in yuan more attractive in practice because it avoids double conversion through the dollar.

"It's a Chinese strategy to try to change and use more of their currency," Burrell told BBC Mundo.

Brazil is China's largest trading partner in Latin America. And the Asian giant has been South America's first trading partner since 2009.

But he points out that more than 90 percent of Brazil's foreign trade is still denominated in dollars.

Although the yuan may gain more weight as the second currency in Brazil's international reserves with recent agreements, it is still marginal against the dollar (the Chinese currency occupied less than 6% of the basket in December , and the US captured more than 80%).

Argentina's Economy Minister Sergio Massa announced in April an agreement to stop paying for imports from China in dollars and do so in yuan, following a $5 billion equivalent exchange or financial swap agreement with the Asian country. had gone.

Thus, Argentina officially calculated that during May alone its companies would pay more than 1.4 billion US dollars of Chinese-made imports (from electronics to cars) in yuan, and then an average of 790 million yuan. US dollars will be paid monthly.

Argentina's government sought to preserve the country's international reserves through these agreements, which have fallen to alarming levels amid the economic crisis and the central bank selling dollars in the foreign exchange market to stem the peso's devaluation.

In Bolivia, where international reserves were also shrinking and dollars were scarce, the president touted the new use of the yuan in foreign trade by Argentina and Brazil as a possible way forward.