STAFF NEWS & ANALYSIS
Stranger and Stranger: The Chinese-Argentine Swap Gambit
By Staff News & Analysis - May 21, 2013

China to the rescue of Argentina with a 10 billion dollars equivalent swap … Argentina is negotiating with China a new 10 billon dollars equivalent swap of international reserves support based on the experience of 2009 when the global financial crisis. The new accord should theoretically help Argentina strengthen its international position vis-à-vis the run on the dollar (or the flight from the Peso) and which has cost the Central bank 4 billion dollars so far this year. – MercoPress

Dominant Social Theme: The Chinese are undermining the dollar and are very clever people. It's West versus East, as it has been eternally.

Free-Market Analysis: We have a lot of trouble taking this at face value but first we should provide the background. Argentina's President Cristina Fernandez is in discussions with Chinese Vice-president Li to accept Argentine pesos within the context of yuan-peso swap. Here's more:

The swap does not actually mean an increase in international reserves unless there is a critical situation when a trigger goes off but it is a clear support for Argentina …

How does the system work? If Argentina's international reserves continue to deplete then the country could have access to a credit line of 10 billion dollars but in Yuans. In exchange Argentina delivers to China the equivalent in Argentine Pesos.

However there is another catch since pretending to change that sum of Yuans into dollars in international markets won't be easy, so what matters is the signal, not necessarily the implementation.

The swap is thus another option the government of President Cristina Fernandez is appealing to with the purpose of reinforcing its reserves situation quiet battered because of the loss of confidence in her government and her economic policies by Argentines (and neighbouring countries).

Ever since Fernandez nationalized oil giant YPF, owned by Spain's Repsol, the ramifications have been sweeping and negative. Shunned by the West, Argentina has succumbed to one of its cyclical slumps and Fernandez herself is struggling to keep the economy from shutting down entirely, as it did in 2001.

There are reports that she will formally devalue the peso in October after elections and presumably the potential swap with China is another economic tool in a kit she can use as necessary.

It's a win-win for China, too. From the ChiComs' point of view, China gains yet another national partner that recognizes the superiority of the yuan and adds to its liquidity versus the dollar.

There are some who see this as a China-versus-the-US scenario. But we wonder if this is necessarily the case or if these swaps are contributing to a larger globalist goal of creating a single currency.

Of course, this is the way these strategies work, from what we can tell. They are never announced and seem to be generated by random circumstances. In this case, the world's economic situation has generated an adversarial situation between China and the US.

But when one looks closely at China, it becomes evident that much that China has done mimics the US and could not have been accomplished without Western support and aid. It is probably more likely that China and the US are giving the appearance of adversaries and that the reality is more along the lines of a joint effort than not.

Global diplomacy is rarely what it seems and the chances are probably fair that top men around the world are all involved in a concerted effort to continue to build internationalism. This includes a global central bank and a global currency.

Seen this way, China's advances are likely to continue and as they do, global currency competition will escalate. This would obviously have significant ramifications.

After Thoughts

The big story here is not necessarily the Argentine bailout then but China's continued currency advancement and what it portends for Western economic systems.

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