Countries settling debts in RMB, as de-dollarization picks up steam

A Reuters report on Monday said Indian Oil Corporation started buying Russian oil in yuan since June. It cited multiple sources to say that at least two of India's three private refiners are also buying Russian oil in yuan.

A few days ago, Argentina repaid $2.7 billion of foreign debt it owed the International Monetary Fund in yuan, the first time Argentina settled a foreign debt in yuan. A day earlier, Argentina's central bank announced that the yuan would be included in its banking system, allowing domestic financial institutions to open yuan savings accounts.

China-Argentina financial cooperation has been deepening this year, with Argentina paying for imports from China in yuan since April, and renewing a currency swap agreement with China in early June, increasing the free use quota from 35 billion yuan ($4.83 billion) to 70 billion yuan. Later, Argentina's securities authorities approved the issuance of renminbi-settled securities products in the local market. All this means China-Argentina financial cooperation has entered a fast track.

China is one of Argentina's most important trading partners, and Chinese and Argentine enterprises using more local currencies for settlement will reduce exchange costs and exchange rate risks and help enhance bilateral trade.

Argentina has been facing a shortage of dollars in recent years and the recent dry weather has greatly affected its agricultural export earnings, making its shortage of dollars more prominent. Thus, increasing use of the yuan can ease the pressure on Argentina's foreign exchange reserves. The use of the yuan in import settlement can also guarantee China's exports to Argentina, while helping Argentina avoid debt default, maintain macroeconomic stability and boost market confidence.

Argentina has long been plagued by the wayward monetary policy of the United States. The aggressive interest rate hikes made by the US have caused severe capital flight and currency depreciation in Argentina, forcing it to borrow from the IMF. This is like opening a Pandora's box and plunging Argentina deep into debt. Reducing dependence on the US dollar is thus an important step for Argentina to free itself of the US' dollar hegemony.

As Argentina is Latin America's third-largest economy, other Latin American countries are following its concept of "de-dollarization" and are already exploring the possibility of settlement in the yuan. This reflects the desire of developing countries to achieve financial diversification and pursue independent development.