2023-08-07 14:16:52
– South America turns away from the dollar
The Chinese currency yuan is rapidly gaining importance in Argentina, Brazil and Bolivia. This has consequences for the entire economy – and beyond.
Christopher Gurk from Buenos Aires
Posted today at 4:16 p.m
Argentina exports large quantities of meat to China – and many Argentinian companies no longer invoice their exports in dollars but in yuan: workers in a meat processing factory in San Andrés de Giles west of Buenos Aires.
Photo: Enrique Marcarian (Archyde.com)
It’s a long way from La Paz to Beijing. Once across the Pacific, from the Andean highlands to Asia, to literally the other side of the world. Hardly anything will change in these geographical conditions in the future, but Bolivia and the People’s Republic are moving ever closer together: Close diplomatic relations are maintained, and China is one of the most important trading partners.
Bolivia has now also declared that in future it intends to increasingly use the renminbi instead of the dollar to pay for imports and exports from Asia, the Chinese currency, usually just called the yuan. “We are already using the yuan,” said Economy Minister Marcelo Montenegro last week. Already in May and July, Bolivia made financial transactions of 278 million yuan, the equivalent of regarding 39 million dollars. “And that’s just the beginning,” said the minister.
In Brazil, the yuan has even overtaken the euro
All of that would hardly be worth mentioning. After all, Bolivia is a comparatively small and poor country in South America. But the economy is growing and there are many mineral resources. Above all, however, Bolivia is anything but alone in its decision to increasingly turn to the Chinese yuan in the future. Neighbors Argentina and Brazil, following all the two largest economies in South America, have recently taken a similar path.
Earlier this year, the Argentine government unveiled a plan to use the yuan to pay for imports from China. According to Buenos Aires, hundreds of Argentinian companies now settle their imports and exports in yuan. In Brazil, on the other hand, the Chinese currency has even overtaken the euro: the yuan is now the second most important foreign currency in the vaults of the Brazilian central bank.
China is gaining influence in Latin America
Part of the reason for South America’s abandonment of the dollar is sheer necessity. In Argentina as well as in Bolivia, the stocks of the US currency have recently shrunk sharply. This is due to the slump in exports and the increasing demand for US foreign exchange in the country. At the same time, the yuan’s success is just another symptom of a general trend. China is gaining influence in Latin America, and this is having repercussions far beyond the economy.
The relationship between the two regions goes back a long time. In many Latin American countries there were waves of immigration from China in the 19th and 20th centuries. According to estimates, up to 10 percent of the population in Peru today have ancestors from the People’s Republic.
In addition to family and historical ties, there were also political and ideological ones in some cases: Beijing has always maintained good relations with left-wing governments in Latin America. Cuba’s revolutionary leader Ernesto “Che” Guevara was in China twice in the 1960s, and Hugo Chávez, Venezuela’s socialist caudillo, even visited the People’s Republic five times.
The end of Washington’s backyard
Nonetheless, with a few exceptions, China’s influence in Latin America has always been small compared to that of the United States. For decades, Washington saw the region as either a backyard or a potential gateway for hostile powers.
It was therefore perfectly natural to interfere in the political and economic fortunes of the countries of Latin America, with investments and economic development, but also with violence if necessary. In order to stop a supposed advance of communism, right-wing dictatorships were supported. Washington sent weapons, if necessary even troops.
But with the end of the Cold War, this rigid system began to move. At the turn of the millennium, the USA was still the most important trading partner for almost all countries in Latin America. Today, 20 years later, China has overtaken the United States in many places. More than a third of Brazil’s exports already go to the People’s Republic. The figures are similar in Peru and even higher in Chile.
Actually, it is only a logical step for the region to turn away from the dollar
In Latin America, China is primarily interested in raw materials: soya from Brazil, copper from Chile, meat from Argentina. In addition, the region has long had geopolitical significance. Beijing is therefore constantly expanding its influence, with loans and infrastructure projects. Dams are built with Chinese help, railway lines, roads and ports. A whole series of Latin American countries are now part of the so-called new Silk Road, with which China wants to promote its trade worldwide.
At the same time, several governments in the region have broken off diplomatic relations with Taiwan in favor of Beijing in recent years. China sees the island state as a breakaway province. Therefore, any state that wants to maintain bilateral relations with the People’s Republic must sever ties with Taiwan.
The fact that the region is now also turning away from the dollar and at the same time towards the Chinese yuan seems only a logical step. Brazilian President Luiz Inácio Lula da Silva summed up this development during a visit to China in April this year with a question: “Who actually decided that the dollar should become the world currency following the disappearance of gold as a means of payment? » Why can’t trade be done via the Brazilian real – or also via the yuan?
However, it is unlikely that the whole of Latin America will soon start calculating in Chinese instead of US currency. Almost 90 percent of all currency transactions worldwide are still in dollars. And the same applies to foreign exchange reserves. Even if the yuan has overtaken the euro in Brazil, by far the most important currency held by the Brazilian central bank is still the dollar. So the Chinese yuan may gain in importance. However, the dominance of the dollar remains unbroken, including in Latin America.
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