Argentina’s Central Bank renews currency swap with China

Argentina's Central Bank (BCRA) and China's People's Bank of China (PBoC) have extended their currency swap agreement, increasing its maturity from three to five years. The renewed deal, valued at RMB130 billion (approximately US$13 billion), was signed on <date>. The renewed agreement will keep the initial tranche of RMB35 billion (around US$5 billion) active, which was first utilized in early 2023.

According to BCRA's head Santiago Bausili, the longer duration aims to enhance "predictability regarding the continuity of this instrument." He added that the swap "supports financial stability in Argentina and promotes trade and investment between the two countries." The BCRA further emphasized that the renewal of agreements signifies the strong cooperation between their institutions and the excellent relationship they have maintained over the past 17 years since the inception of the first agreement.

The currency swap agreement operates under two primary modes. The onshore account modality keeps funds within China's financial system, benefiting from lower financing costs. The offshore modality enables yuan to be converted into U.S. dollars for international transactions, providing greater flexibility in managing reserves. In essence, the swap acts as a currency exchange line between the two central banks, allowing Argentina to access yuan for authorized transactions, such as paying for imports, without depleting its U.S. dollar reserves.

In return, BCRA provides pesos to its Chinese counterpart, which must later be returned along with interest.

Bausili noted that the activated portion of the swap can be utilized without requiring additional approvals, making it a crucial tool for BCRA's liquidity management. As the Argentine government pushes forward with a reform of BCRA's charter, which lawmakers are anticipated to begin debating in August, the future of the currency swap remains a subject of discussion.