Bolivia Advances in Replacing Dollar With Yuan for Trade With China
© AFP 2023 / Fred DUFOUR
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Faced with the dollar shortage affecting Bolivia, the government of Luis Arce is considering expanding its foreign trade through currency exchange with China. In this context, the entrepreneurs of Santa Cruz, the so-called "national economic engine," welcome the establishment of a bank from the Asian giant in the South American country.
Both Bolivian President Luis Arce and representatives of the Bolivian business sector agree on incorporating the Chinese yuan in international trade between the two countries, as other South American nations, such as Brazil and Argentina, have done.
"The two largest economies in the region are already conducting transactions in yuan in agreements with China. And this is the trend in the region," Arce said at a press conference to mark Bolivian Journalists' Day on May 11.
In doing so, they aim to move away from the US dollar as the sole international exchange currency. This decision is seen as a solution to the currency problems faced by several Latin American countries.
Hypothetically, this path would also be beneficial for the finances of the Plurinational State of Bolivia, which is currently experiencing a shortage of the US currency, explained President Arce.
In recent weeks, Chinese Ambassador to Bolivia Huang Yazhong has held meetings with Santa Cruz businessmen to evaluate the use of the yuan in bilateral trade, including the possibility of the Asian giant establishing a bank in the South American country.
"The creation of a Chinese bank in Bolivia would make it possible to exchange in yuan. Of course, this bank in Bolivia would deliver in Bolivian pesos," said Oscar Mario Justiniano, president of the Confederation of Private Entrepreneurs of Santa Cruz, in an interview with Bolivisión TV channel.
Sputnik spoke with Bolivian economist Mike Gemio, who has analyzed the rapprochement between the Bolivian peso (b$) and the Chinese yuan. The prospects of opening a Chinese bank in the country are "already a significant development. It shows that foreign capital is interested in the national economy."
Conflicts and Currencies
Russia’s special military operation in Ukraine, which began in February 2022, has had an unexpected effect: the US dollar has begun an unstoppable decline as an international trade currency.
The rise of the yuan has been consolidated in countries in Africa and Asia. Now it is Latin America's turn, where several countries have China as a major trading partner. Therefore, the exchange of products in the Asian currency was a predictable step.
According to Gemio, the global decline of the dollar "shows that the world prefers to use its local currency and other currencies for its international reserves".
Until 2010, China traded less than 1% of its products in yuan, while 83% was done in dollars, according to Bloomberg. In the last month of March, for the first time in the history of the Asian giant, the use of the yuan (48%) for commercial exchanges surpassed that of the US currency (47%).
Arce instructed the Central Bank of Bolivia (BCB) to analyze the economic policies of Argentina and Brazil regarding the yuan in order to evaluate the convenience of advancing in the commercialization of this currency instead of the dollar.
Former President Evo Morales (2006-2019) also expressed his support for promoting trade in yuan between Bolivia and other nations. “If we open this trade with China, we will no longer need the dollar. Our currency is respected, and we respect their Chinese yuan,” he said in an interview on Radio Kausachun Coca.
"I said it, and I mean it: when there is a Chinese bank, I will be the first to open my bank account in Chinese yuan. In this way, little by little, the US dollar will gradually disappear," Morales predicted.
Perspective of Entrepreneurs in Santa Cruz
Santa Cruz Department is of great economic importance to the Plurinational State of Bolivia. In the decade from 2012 to 2022, Santa Cruz's production "accounted for an average of 27% and 39% of national exports in terms of value (dollars) and volume, respectively," according to data from the regional government.
The Morales and Arce presidencies had (and still have) to contend with the economic powers of Santa Cruz, whose entrepreneurs also have legislators and local authorities who are often politically trained in the strongest local institutions: the Federation of Private Entrepreneurs of Santa Cruz, as well as the Bolivian Institute of Foreign Trade (IBCE).
But ideological differences aside, entrepreneurs in Santa Cruz have expressed interest in China opening a bank in Bolivia.
"We sincerely hope that this can be achieved, because at the end of the day, what needs to be addressed is the use of a particular currency, having the possibility to pay in the country of origin with their own currency, and receive their own currency in the destination country," said Justiniano, representative of private entrepreneurs in Santa Cruz.
The IBCE highlighted the values of the trade balance between the two countries. The institute emphasized that in 2022, imports amounted to more than $2.5 billion, while exports were around $800 million.
"With great gratitude, we see that this situation has also occurred in neighboring countries such as Argentina. I understand that the famous Export–Import Bank [of China] also exists in Brazil. So today, China is becoming the main partner for global development. In Latin America, Bolivia is no exception," said Alan Camhi Rozenman, president of the IBCE, in statements to the local media.
Sputnik attempted to contact the institute to delve deeper into these concepts, but did not receive a response.
According to IBCE data, Bolivia's purchases from China include products such as auto parts, tires, motorcycles, agricultural inputs, heavy machinery, and other equipment.
On the other hand, Bolivia sells minerals such as silver and its concentrates, as well as zinc and beef.
Proceed With Caution
For President Arce, the dollar shortage plaguing Bolivia reflects a "struggle for control of the global economy" between the bloc led by China, Russia, and India, and that of "old Europe and the United States."
According to Arce, "in Latin America, the United States has always had a great influence on us. But today, many countries have more foreign trade with China than with the United States. Things are changing," he said.
Gemio believes the Bolivian government needs to proceed with caution: "International trade in Bolivia needs to assess which countries it is doing business with and whether they will accept a possible currency change." In this regard, the alliances established between Russia and China with economies in Africa and Asia are noteworthy.
Regionally, "with Argentina and Brazil, the first step is to measure trade with each country and analyze how important it is for the Bolivian economy. Based on this analysis, decisions should be made," the economist concluded.
