During 2014, the Central Bank of the Argentine Republic concluded an agreement swap of local currencies with the Bank of the People's Republic of China, for an amount equivalent to 11.000 million dollars, for a maximum term of 3 years.
The agreement establishes that the BCRA may request from its Chinese counterpart a disbursement of up to 70.000 million yuan, and in return deposit the equivalent in pesos, with a repayment period of up to 12 months.
A Swap is an agreement between two parties to exchange flows of funds on established dates and for a period of time in the future. It comes from “to swap” which means to exchange.
The characteristics that must be taken into account for its characterization are: the amount, the interest rate, the negotiation date, the life of the swap, the determination date, the payment date and the maturity date.
However, the previous one was not the first commitment of the same nature that our country agreed to with the Asian giant. He first antecedent must be traced to the swap approved with China on April 15, 2009.
In it, both central banks committed to carrying out a currency swap for an amount of 70.000 million yuan (38.000 million pesos), a figure that is equivalent to 10.200 million dollars. The effective period of the agreement was set at three years, with the possibility of extending it - by mutual agreement - between both parties.
The decision to reach an agreement with the Asian country was based on the precautionary motive that was activated after the global crisis of 2008 and the persistence of its effects the following year; all of which could be seen in the volatility of international markets. The objective was clear, to have exchange insurance as a way to guarantee access to international currency in the event of eventual illiquidity. By then, the BCRA's reserves amounted to $47.000 billion.
China is the second largest economy in the world in terms of GDP volume of 9,24 trillion dollars; only surpassed by the United States, with a value of 16,77 trillion dollars. In terms of foreign policy, the Chinese Central Bank sealed swap agreements for a total of 650.000 million yuan (about US$ 95.000 million) with South Korea, Malaysia, Indonesia, Hong Kong, Belarus and now, Argentina; as a way to promote the yuan as a means of international payment. In this way, our country became the first Latin American country to reach an agreement on this matter with the Beijing regime.
Although the situation of international crisis, due to which this agreement was resorted to, suggested a potential situation of illiquidity, it resulted in the instrument finally not being used.
It expired after three years, as specified in the commitment. The path of the agreement that our Central Bank currently maintains is different. He swap with China It was signed in July 2014, between the presidents of the monetary authorities of each country, for an amount equivalent to 11.000 billion dollars.
On that date, international reserves amounted to 29.519 million dollars. Meanwhile, at the end of July of that year, our country's monetary base stood at 371.689 million pesos.
The monetary base is made up of two factors: monetary circulation and the reserves that the remaining banks of the financial system maintain in the BCRA in the form of current accounts denominated in pesos.
Likewise, monetary circulation is made up of bills and coins in circulation, to which are added canceling checks denominated in pesos and in circulation.
The Chief of Staff at that time, Jorge Capitanich, in statements made at the Government House, stated that the interest rate agreed upon by President Cristina de Kirchner and her Chinese counterpart Xi Jinping was between 6% and 7%. ; without delving into greater details.
Additionally, it was assured that a series of agreements would be signed with the People's Republic of China, for an approximate amount of 7.500 billion dollars.
Finally, the BCRA reported that, unlike the previous swap signed in 2009; In this agreement, "the conditions of use would have been significantly improved, making deadlines more flexible, reducing costs and authorizing additional uses to those that had previously been agreed."
Approximately three months later, on October 30, 2014 the agreement was activated with the request for the first tranche by the Argentine Central Bank, for an amount of 814 million dollars.
By then, reserves were 27.346 million dollars, the monetary base closed the month at 407.437 million pesos, and the official exchange rate was around 8,50 $/u$s. In this way, with the swap in its favor, the Government sought to strengthen the confidence of the markets, with the manifest intention of taking measures to deflate the scale of the dollar in its different modalities (from cash with settlement to blue); as well as, to stabilize bilateral trade balances.
By the end of 2014, 2.320 billion dollars had already been used, duly executed in three tranches, which together represented 21% of the total agreed upon in the agreement, and which at the time constituted 7,7% of the total reserves that maintains the monetary authority.
El last section officially reported, dates from January 31, 2015. At that point, five tranches had already been activated, totaling an amount of 3.114 million dollars; equivalent to 28,3% of the agreement.
This situation shows an increase in the participation of swap dollars in international reserves, positioning itself at a ratio of 9,9%; that is, an increase of two percentage points in just one month. From that date onwards, official communications regarding the successive executions of the swap with China were interrupted.
From now on, public announcements regarding the execution of successive executions of the swap tranches are interrupted. In this regard, for the month of June it was estimated that the total execution of the swap amounted to 8.247 million dollars.
That is, approximately 50% more of the swap had been executed in just four months, an amount that came to represent a ratio of 25% of the BCRA's reserves.
In the first days of August, a external shock of the Asian country, because the Chinese People's Bank devalued its currency by 4,4%.
Since a large part of the reserves are originally denominated in yuan, a devaluation by China affects the valuation of the swap downwards and, consequently, the reported level of international reserves contracts. In this way, the devaluation implied a decrease of 365 million dollars in reserves.
It should be noted that for every percentage point that the yuan depreciates, Argentine reserves fall by US$83 million (assuming that no more tranches of the swap are activated).
Come September, estimates showed that by then $9.500 billion of the swap had already been used, that is, 86,4% of the agreement, which represented 28,3% of the reserves. As indicated in the table, at the end of the month the official exchange rate closed at 9,30 $/u$s, while the monetary base was around 509.258 million pesos.
In the first days of October, and with the chinese swap sold out, the Argentine Republic had to face debt payments for an amount of US$5.899M in capital, originated by payments to BODEN 2015. On that date, the Central Bank's reserves ended up falling US$4.741M, due because the Argentine state – for example, through ANSES – owned a part of the bonds issued.
In this way, the reserves ended up totaling US$27.713 million. That is, after the payment of the bond, US$1.158 million remained within the Argentine financial system, so the net result of the leak was about US$4.741 million, the majority due to collections from creditors.
Swap recharged
After the payment of the BODEN 2015, the swap with China represents approximately 40% of the reserves, which explains the search for funds through various means by the Central Bank authorities.
Given the expected fall in reserves and with the purpose of recovering the dollars that left the system, the Ministry of Economy announced two new bond tenders: the BONAD (Bono of the Argentine Nation linked to the dollar) for an amount of US$ 500 million and the BONAR B+300, for $3.000 million; both expiring in 2017.
For the same reason, the issuance of BONAR 2015 was also carried out the day after the BODEN 2020 payment, which was tendered for an original value of US$500 million.
Given this situation, within the framework of the IMF Annual Assembly held in Lima, between October 9 and 11 of this year; The president of the Central Bank, Alejandro Vanoli, held a meeting with vice president of the People's Bank of China, Yi Gang. In the meeting described by the Central as "very positive", both officials agreed to "continue advancing in the policy of giving continuity" to the swap and other agreements that the two entities are developing as part of the comprehensive strategic partnership between the Argentine Republic and the People's Republic of China.
To date, it has emerged that a restructuring of the expanded swap was achieved, without further details in this regard. Thus, as of October 23 of this year, the stock of reserves is 27.305 million dollars, including the 11.000 million from the treaty with China, which support a monetary base of 546.397 million pesos.
When the swap was activated, these amounted to 27.346 million and supported a base of 371.689 million pesos. This last number represents 68% of the current circulation.