Against a backdrop of dollar scarcity, Bolivia is making a groundbreaking pivot in its monetary policy. In a strategic move, the Bolivian Central Bank has started to harness the Chinese yuan for its international settlements.
Marcelo Montenegro, Bolivia’s Economy Minister, validated this shift, citing dollar scarcity as a catalyst behind the need for a fresh approach.
Chinese Yuan Gaining Ground in Bolivia’s Financial System
Shaking up the status quo in its fiscal strategy, Bolivia is making a concerted push towards using the Chinese currency in its commercial dealings.
Interestingly, this transition towards the yuan is taking place even in the absence of Chinese banks within Bolivia’s borders, a testament to the country’s commitment to redefining its monetary policy.
Despite the feasibility of operations sans a physical bank, Montenegro opined that the presence of a Chinese bank in Bolivia could expedite the yuan’s adoption for transactions. A smoother transaction process could be facilitated, potentially boosting Bolivia’s trade with China.
China, Bolivia’s eastern ally, shares this sentiment. Plans are being discussed to establish Chinese banks within Bolivia, acting as intermediaries to ease the completion of transactions, as revealed by Huang Yazhong, China’s Ambassador to Bolivia.
Bolivia’s De-dollarization March
In a bid to reduce dependency on the U.S. dollar and diversify economic relations, Bolivia’s President, Luis Alberto Arce, has openly advocated for the de-dollarization of Latin America.
The recent dollar crunch in Bolivia has underscored the necessity of this shift, especially after it compelled the nation to resort to selling part of its gold reserves to garner U.S. dollars.
Bolivia is not alone in this shift towards the Chinese yuan. Latin American countries like Argentina and Brazil have also started integrating the Chinese currency into their financial systems.
Earlier this year, Brazil inked a landmark agreement with China, laying the groundwork for bilateral trade transactions using national currencies. Meanwhile, Argentina has permitted importers to settle Chinese transactions with their national fiat currency.
Prospects for a Chinese Bank in Bolivia
Despite the change in currency for international settlements, the idea of establishing a Chinese bank in Bolivia is still on the cards. The Bolivian state bank has already started transacting in yuan, offering a glimpse into the potential benefits of having a Chinese bank within the country.
Discussions between Bolivia and China regarding the feasibility of opening Chinese financial entities in Bolivia are underway. These entities could potentially expedite commercial operations and offer a solution to the dollar scarcity.
In a telling move, President Arce suggested the possibility of paying imports from China in yuan to counterbalance the dollar shortage and any potential impact on the Net International Reserves (NIR).
Given the presence of Chinese banks like the Industrial and Commercial Bank of China (ICBC) and the Bank of China in Argentina and Brazil, Bolivia’s transition to the yuan could follow a similar trajectory.
Bolivia’s shift to the yuan underscores the country’s broader goal of mitigating the impacts of dollar scarcity and seeking economic stability. As it navigates this transition, the Andean nation’s fiscal strategy could offer valuable insights for other countries grappling with similar issues.
