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Dollars are so scarce in Argentina that the use of yuan is at a record high

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(Bloomberg) — U.S. dollars have become so hard to come by in Argentina that Whirlpool Corp., the U.S. appliance giant, is considering paying with China’s yuan to import parts for a new factory.

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He is not alone.

Across the South American country, a dwindling supply of greenbacks is driving businesses to adopt a currency that would otherwise have played a peripheral role in international trade. The trend highlights both Argentina’s severe financial difficulties and China’s ambitions for the yuan.

“The central bank doesn’t have dollars, so it needs the emergency aid that China is offering,” said Marcelo Elizondo, a trade economist in Buenos Aires. “For Argentina, its currency ties with China represent an emergency, but for China it is a point of leverage to take advantage of a geopolitical opportunity.”

The dollar’s supremacy in world trade is being eroded by fragmentation, especially in developing countries, caused by the rivalry between the US and China. Russia’s economic isolation following the invasion of Ukraine has also opened trade routes other than the dollar to avoid sanctions.

Neighboring Brazil, for example, also intends to use more yuan, a policy decision by President Luiz Inacio Lula da Silva to seek alternatives to the dollar.

In Argentina, however, the yuan represents a quick, short-term solution to keep assembly lines moving, as long-term planning is challenged by rising inflation and zig-zagging politics.

China recently allowed Argentina to use more than half of an $18 billion foreign exchange line to support trade between them. The two nations have shared a bilateral swap agreement since 2009, which was designed as a kind of insurance policy to shore up foreign reserves during liquidity crises.

“The only option left is to access the yuan from China’s swap line,” said Maria Castiglioni, director of consultancy C&T Asesores in Buenos Aires.

More than 500 Argentine companies have applied to pay for imports in yuan, including manufacturers of electronics, auto parts and textiles, as well as oil and mining companies, according to the country’s customs agency.

Officials have also authorized import payments in Chinese currency equivalent to $2.9 billion, according to the central bank. In the first 10 days of June, yuan transactions in the Argentine foreign exchange market amounted to about $285 million, double the amount in all of May.

In addition, the share of yuan transactions in Argentina’s foreign exchange market recently reached a daily record of 28%, compared with 5% last month, according to data from Mercado Obert Electrónico, one of the largest exchanges of the country.

Whirlpool, the Michigan-based appliance maker, is among the Argentine companies now looking to use the yuan instead of dollars. The company invested $52 million in its factory outside Buenos Aires last year to make washing machines and other products.

Now scrambling for imports amid dollar pressure and after shortages briefly disrupted production in recent months, the company is considering paying for some inputs in yuan to ensure a steady supply of key electronic parts.

“We’ve had to stop the factory at times and that’s not good for business, productivity or quality,” Juan Carlos Puente, president of Whirlpool Latin America, said in an interview, adding that the company plans export around 70% of its production to Argentina.

“We are working to see how we can take advantage of this new avenue of flows so that we can continue to import materials,” he said, acknowledging that changing currencies “is not easy.”

If it goes ahead with the plan, Whirlpool would join the ranks of Argentine companies such as Mirgor and Newsan, which paid for imports worth $630 million between May and August in yuan, according to Argentina’s customs agency. Other companies are lining up to get the yuan as the central bank forces companies to find their own dollar financing overseas before waiting months to tap the local currency market.

The Argentine currency has lost half of its value in the past 12 months, the worst performance of emerging markets during this period. The central bank’s dollar reserves are at their lowest level since 2016 and, stripping out the swap line, gold and multilateral financing, their liquid cash reserves are in negative territory.

In a sign of pressure on the peso, the government reported on Wednesday that its trade deficit in May hit $1.2 billion, its largest figure in the red since 2018, when a currency crisis erupted.

China has been promoting the yuan as an alternative to the dollar among other steps to expand its role in the global financial system, including the gradual opening of Chinese financial markets and authorities’ withdrawal from regular currency intervention.

The People’s Bank of China has signed currency swap agreements with about 40 countries over the years and has steadily expanded its nascent local cross-border yuan payment system network, known as CIPS.

Argentina’s rush to pay its yuan bills comes as government officials negotiate with the International Monetary Fund for more initial cash from the country’s $44 billion aid program. Argentina is not meeting any of the IMF’s key targets after a record drought destroyed about $20 billion in crop exports, exacerbating a dollar shortage.

–With the help of Yujing Liu.

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