Just as I had anticipated Ambitthis Friday at dawn in Argentina, Miguel Pesce, president of the Central Bank (BCRA) together with the president of the Bank of the People’s Republic of China (PBC), Yi Gang, renewed the currency swap for another 3 years.
The meeting also agreed to activate a second tranche of up to another 35,000 million yuan (equivalent to u$s5,000 million) that they would be released in favor of the BCRA according to the financial needs that derive from the restriction generated by the drop in exports from the agricultural complex due to the historical drought that affected production.
“The president of the BCRA, Miguel Ángel Pesce, signed the early renewal of the SWAP for 130 billion yuan for a period of 3 years. Likewise, the procedure to increase the amount of use for another 35 billion yuan began,” says a statement from the BCRA. And they clarify that said increase will operate once the first tranche of expansion currently in force is exhausted.
Thus, according to sources from the Ministry of Economy, “an additional US$5 billion are guaranteed, which will be released once the first ones are exhausted.” Hence, the total free availability will reach US$10,000 million in the medium term. They may be used to finance operations or intervene in the exchange market, as officially confirmed.
However, from China, they would have imposed a condition to move forward with this renewal and subsequent expansion: that the agreement with the International Monetary Fund (IMF) be maintained.
Remember that the swap is an exchange of currencies between central banks. The BCRA gives pesos to the BPC and the BPC gives it yuans in exchange. The first agreement between both central banks was established in 2009. In 2014, a second agreement was signed, which was renewed in 2017 and complemented at the end of 2018 with a supplementary one. And, in August 2020, the agreement that is now renewed was signed.
This is what China and the BCRA agreed
Thus, what was signed this Friday is the renewal of that system, which involves 130,000 million renminbi yuan from the swap and 35,000 million freely available, equivalent to US$5,000 million, which are already in a BCRA account and which they gave it the possibility to improve the situation of its net reserves.
On the other hand, there was also talk of the possibility of extend that section of free availability. There were doubts in some sectors of the market that progress would also be made in this sense and it was finally achieved, but not automatically, rather what was signed is a kind of agreement for a future authorization of freely available amounts in favor of the BCRA , which will be released as required by the monetary regulator.
And it is that the BCRA has not yet used the liquid US$5,000 million that are already in an account in its name, Therefore, for the moment, it has these resources available in its reserves, but, given the current difficult context, it is very positive that the possibility of accessing another amount of equal value in the future is opened, as was done. as China committed to this extension agreement up to US$10,000 million. And, another key element in this new announcement is the fact that it will be able to use that liquidity to intervene in the market, which guarantees it significant firepower.
Source: Ambito
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