A worker at an exchange house counts Chinese yuan banknotes in La Paz, Bolivia, Wednesday, July 26, 2023. Bolivia’s state-owned bank, Banco Unión, began carrying out transactions using China’s currency, the yuan. (AP Photo/Juan Karita)

LA PAZ, Bolivia — Bolivia is now using the yuan to pay for imports and exports, becoming the latest country in South America to regularly use the Chinese currency in a small but growing challenge to the hegemony of the US dollar for international financial transactions. in the region.

Between May and July of this year, Bolivia carried out financial operations for 278 million Chinese yuan (38.7 million dollars), which represents 10 percent of its foreign trade during that period, the Economy Minister reported Thursday. Marcelo Montenegro.

“We are already using the yuan. It is a reality and a good start,” Montenegro said during a press conference. “Exporters of banana, zinc and timber manufacturing are transacting in yuan, as are importers of vehicles and capital goods.” These electronic transactions are carried out through the state-owned Banco Unión.

“The amount used in yuan is still relatively small, but it will increase over time,” Montenegro said.

With these transactions, Bolivia joins other South American countries, including Brazil and Argentina, which are using the yuan. All three countries are governed by left-wing or left-leaning governments.

In Latin America and the Caribbean, the use of the yuan is growing especially “in those countries seeking to establish stronger ties with China, who see themselves politically aligned in some way with this particular goal of lessening their overall dependence on the dollar. and in the United States in general,” said Margaret Myers, director of the Asia and Latin America Program at the Washington-based Inter-American Dialogue.

The use of the yuan comes at a time when China’s footprint in the region is increasing with increased trade and investment.

“There is a lot of anxiety in Washington about threats to the special role of the dollar in regions like Latin America,” said Benjamin Gedan, director of the Latin America Program at the Washington-based Wilson Center. “China’s new role as Argentina’s lender of last resort and Bolivia’s use of the yuan for international trade are a sign of the times.”

Earlier this year, Argentina’s government unveiled a plan to use the yuan to pay for imports from China as a way to preserve its dwindling foreign reserves and raised the possibility of paying off debts to the International Monetary Fund using the chinese currency. In Brazil, the yuan overtook the euro as the second most important currency in its foreign reserves at the end of 2022, when 5.37 percent of central bank holdings were in Chinese currency, compared with 4.74 percent. euro cent.

In Bolivia, the yuan came into use after months of severe dollar shortages that have been impacting the country’s economy since February.

Some analysts and members of the opposition have questioned the decision to use the yuan.

“It is not a long-term solution and it seems more like an attempt to cover up economic problems,” said José Gabriel Espinoza, an economics professor at the Catholic University of Bolivia.

The manager of the Bolivian Chamber of Exporters, Marcelo Olguín, dismissed the criticism, describing the use of the yuan as merely “an alternative to operate.”

Beyond political considerations, looking for alternatives to the US dollar, which has grown more expensive amid rising interest rates, also makes economic sense, said Rebecca Ray, a senior academic fellow at the Policy Center. for Global Development at Boston University.

“Everyone is facing the same global macroeconomic conditions, and the biggest part of that is that the US dollar is really expensive and hard to come by. So basically there is a global dollar shortage among current central banks,” Ray said. “Central banks around the world are looking for alternatives.”

Bolivian President Luis Arce said earlier this month that the Andean country was looking for alternatives amid a “dollar liquidity crisis.”

During a visit to China in April, Brazilian President Luis Inácio Lula da Silva questioned the pervasiveness of the US dollar in foreign trade.

“Who was the one who decided that the dollar was the currency after the disappearance of the gold standard?” he said.

Beijing is welcoming this new dynamic after years of a concerted effort to push for the yuan to be used more widely on the international stage.

“China clearly wants to challenge the global dominance of the dollar, both for practical and symbolic purposes,” Gedan said.

Now that is starting to become more attractive to more countries.

“China has been wanting to internationalize (its currency) for many years. What is new is that other countries are receptive to the idea because the current situation is not sustainable,” Ray said.

However, experts agree that a large-scale shift towards the yuan is unlikely in the near future.

“I think there’s kind of a natural limit that most countries will hit,” Myers said. “There are still a lot of transactions to be done with the dollar.”

The “main limitation here is the fact that the Chinese financial system is still relatively closed,” Myers added.

Gedan added that at least “for now, there is generally more faith in the Federal Reserve than in China’s central bankers.”

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