The International Monetary Fund (IMF) has suggested that it may accept the Chinese Yuan as a currency for countries to pay their debts.
The hint at changing the currency for settling obligations with the IMF comes following Argentina’s recent debt repayment in yuan.
IMF spokesperson Julie Kozack confirmed on Thursday that Argentina had paid off part of its debts with the IMF in Communist China’s currency.
The debt repayment was equivalent to $1.1 billion of the $2.7 billion that matured last month.
“As we have stated in the past, the Argentine authorities continue to remain current on their financial obligations to the IMF,” Kozack said at a press briefing.
“The RMB is one of the five freely usable currencies that members can and have used to settle their obligations with the IMF,” she added, referring to the Chinese currency by its official name, the renminbi.
Kozack said that negotiations on the $44-billion program are still ongoing.
She denied that the IMF received a letter from the Chinese Communist Party stating it would allow Argentina to use a swap line with China’s Central Bank to pay off its IMF dues.
“Our team has been working intensively with the Argentine authorities to make progress toward the completion of the fifth review,” she said.
“And to help the authorities address a very complex and challenging situation.
“In terms of the details of those discussions, because the teams are still in discussion, I will not pre-empt those discussions, and I will not get into the details other than to say that the discussions are frequent, and they are aimed at advancing the program.”
“With respect to a couple of the other questions on the letter, [our] understanding is that there is no such letter,” Kozack added.
Argentina’s Central Bank signed a deal with China last month to renew the 130 billion yuan ($18.4 billion) swap line for another three years, doubling the amount of freely accessible funds from 35 billion yuan ($5 billion) to 70 billion yuan ($10 billion).
Argentina’s Ministry of Economy said the swap would be in a single tranche and freely available for any type of financial operation, adding that the country would look to promote more yuan spot and future operations.
On June 29, the bank said it had incorporated the yuan as a currency accepted for deposits in savings banks and checking accounts, signaling a departure from the U.S. dollar as its sole official reserve currency.
“Financial entities will thus be enabled to open bank accounts denominated in renminbi yuan,” the bank stated.
The move comes as the South American nation’s foreign currency reserves plummeted due to a severe drought that has reduced grain exports, its major source of dollar earnings, and the peso currency has weakened under the weight of 109 percent annual inflation.
Ahead of general elections in October, Argentina’s government is trying to rebuild reserves to make debt payments, cover trade costs, and meet economic targets under a $44 billion loan program with the IMF.
Aside from Argentina, Brazil also signed an agreement with China earlier this year that would allow them to conduct trade and investments in their own currencies, further reducing the U.S. dollar’s dominance.
Milton Ezrati, chief economist at Vested, a New York-based communications firm, said the deal is an attempt to elevate the yuan as an international currency, yet, “the yuan is a long way from an international reserve currency such as the dollar.”
According to Ezrati, China does not have the financial markets to support financial arrangements in yuan, which is one of the requirements for a world reserve currency.
“If you are the world’s reserve currency, as the dollar is, then traders all over the globe have to hold your currency because that’s the way they do their business,” Ezrati said.
“If they hold your currency, they want a place to invest it.”
Erzati contended that in such a case, traders in yuan might face difficulties in securing markets to invest in because China controls the flows of money into and out of the country.