IMF spokesperson Julie Kozack confirmed that Argentina paid off $1.1 billion of its $2.7 billion debt using the yuan, and that it may soon become the norm for other countries to do the same.
"As we have stated in the past, the Argentine authorities continue to remain current on their financial obligations to the IMF," Kozack said at a press briefing.
"The RMB is one of the five freely usable currencies that members can and have used to settle their obligations with the IMF," she added, RMB referring to the official name of China's currency, renminbi.
Negotiations on the $44 billion program are still ongoing, Kozack clarified, rejecting the claim that the IMF received a letter from China stating that it would allow Argentina to use a swap line with the Chinese Central Bank to pay off its IMF dues.
"Our team has been working intensively with the Argentine authorities to make progress toward the completion of the fifth review," she added. "And to help the authorities address a very complex and challenging situation."
"In terms of the details of those discussions, because the teams are still in discussion, I will not pre-empt those discussions, and I will not get into the details other than to say that the discussions are frequent, and they are aimed at advancing the program."
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Last month, Argentina's central bank forged a deal with China to renew the 130-billion-yuan ($18.4 billion) swap line for another three years, doubling the amount of freely accessible funds from 35 billion yuan ($5 billion) to 70 billion yuan ($10 billion).
The Argentine Ministry of Economy said the single-tranche swap will be freely available for any type of financial use, adding that the country hopes to promote more yuan spot and future operations.
While it used to be that the United States dollar was the sole official reserve currency of Argentina, the country's banks will now accept deposits of Chinese yuan in savings and checking accounts.
"Financial entities will thus be enabled to open bank accounts denominated in renminbi yuan," Argentine authorities explained, signaling a shift away from the U.S. dollar as the sole official reserve currency of the country.
The move comes as Argentine crops are failing due to severe drought, grain exports being Argentina's major source of dollar earnings. The losses have caused the South American country's foreign currency reserves to plummet, not to mention the fact that the peso currency has weakened dramatically due to 109 percent annual inflation.
Earlier this year, Argentina's neighbor Brazil signed an agreement with China to allow for trade and investments to occur in their own currencies rather than in U.S. dollars. This has further weakened the U.S. dollar's world dominance.
Despite all this, "the yuan is a long way from an international reserve currency such as the dollar," claims Milton Ezrati, chief economist at Vested, a New York-based communications firm.
According to Ezrati, China lacks the financial markets to supports financial arrangements in the yuan, this being one of the requirements for a world reserve currency.
"If you are the world's reserve currency, as the dollar is, then traders all over the globe have to hold your currency because that's the way they do their business," Ezrati says. "If they hold your currency, they want a place to invest it."
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