In the midst of the severe drop in reserves, the Central Bank has so far received three disbursements of US$1,000 million corresponding to the expansion of the use of the current swap with China.
In the midst of the severe drop in reserves, the Central Bank has so far received three disbursements of US$1,000 million corresponding to the expansion of the use of the current swap with China. Then, $2 billion more will remain where $1 billion will arrive in April. These US$5,000 million in total of free availability in total come to improve the level of liquidity for interventions in the exchange market. whatBut what is the swap with China and what is it for?
What is the swap?
The swap is an exchange of currencies between two countries and in practice acts as a contingent loan. This agreement between the central banks allows Argentina to count among its reserves close to US$18,000 million, which swells the gross reserves. If the government uses the money and converts the yuan into dollars, a rate of around 7% per year is paid.
How much does it represent in reserves?
According to private estimates, the swap with China represents just under half of the Central Bank’s international reserves. These operations do not alter the level of unrestricted reserves, which is the category used by the Monetary Fund to measure the reserve accumulation execution criterion. But the swap activation allows liquidity to the monetary authority to intervene in the exchange market and provide predictability to the exchange policy.
What is it for
The amount of the swap is counted within the gross reserves and not in the net reserves of the Central Bank to be used at any time. The yuan can also be used to pay for imports without resorting to dollars and this use does not imply an extra fee or a penalty. As confirmed by the Economy, among the measures being considered in the economic team A more flexible payment term is being studied for importers who trade with China in yuan. The idea is to generate the greatest dollar savings possible in a bilateral relationship that is deficient for Argentina by some US$8,000 million each year.
Why swap is important
This freely available amount can be used by the Central Bank to intervene in the exchange market at a time when the Central Bank does not stop losing reserves. So far this month, it has already added a red of US$1,140 million and more than US$2,200 in all of 2023. The swap helps provide liquidity as well as the disbursements approved by the CAF (Development Bank of Latin America) and the Central American Bank for Economic Integration (CABEI), for US$ 285.4 million and US$ 395 millionrespectively.
Being freely available means that the dollars can be used to cover the payment of imports of intermediate goods and inputs for local production, which helps to decompress the demand for dollars.