Argentina announces expansion of currency swap with China

By Bala Chambers

LONDON (AA) - Argentina on Thursday announced an expansion of a currency swap with China by US$3 billion.

"An extension of the monetary swap by US$3 billion was agreed with the People's Republic of China,” Gabriela Cerruti, the spokeswoman for the presidency, said during a press conference.

The announcement comes in the wake of President Alberto Fernandez’s visit to China, where on Sunday Argentina joined China’s multi-trillion-dollar Belt and Road Initiative, which includes more than US$23 billion in investment and cooperation deals.

The new swap deal with China will help boost the Argentine Central Bank’s reserves.

During the press conference, Ceruti added that Argentine authorities are also "studying expanding the possible uses of these reserves," which act like a contingent loan, bearing no costs as long as they are not activated.

She said the authorities are "conversing with the corresponding organizations to see what other types of uses can be given to this expansion of the swap."

The Argentine Central Bank responded to the announcement with caution, describing it as a "political agreement while the technical details continue to be negotiated" relating to the amount and timing of the entry of the yuan into Argentina's reserves.

The current total swap amount between the Argentine Central Bank and the People’s Bank of China, China’s Central Bank, is around US$18.7 billion.

During 2020's renewal process, both nations agreed to eliminate the requirement of International Monetary Fund (IMF) support for a swap deal.

Argentina’s swap with China was originally signed in 2011 during Cristina Fernandez de Kirchner's presidency.​​​​​​​

According to the Investopedia website, a currency swap is a transaction in which two parties exchange an equivalent amount of money with each other but in different currencies. The parties are essentially loaning each other money and will repay the amounts at a specified date and exchange rate. The purpose could be to hedge exposure to exchange-rate risk, to speculate on the direction of a currency, or to reduce the cost of borrowing in a foreign currency.