Bolivia challenges dollar dominance with yuan, rouble.
Bolivia challenges dollar dominance with yuan, rouble.
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In a move to reduce dependence on the US dollar, Bolivia’s government has set its sights on using the Chinese yuan for foreign trade. The shift towards alternative currencies in Latin America is gaining traction, with Bolivia taking the lead. Economy Minister Marcelo Montenegro emphasized during a press conference in La Paz that the country is witnessing a progressive increase in the use of the yuan, reflecting a pattern in international trade.
One of the key reasons for Bolivia’s decision is the severe shortage of dollars the country has been grappling with for months. The shortage has been fueled, in part, by a decline in natural gas production, a vital export for Bolivia. This has put pressure on the country’s foreign currency reserves, which have fallen from $15 billion in 2014 to around $4 billion. The dollar shortage has not only strained Bolivia’s finances but also jeopardized the country’s long-standing currency peg with the US dollar.
Montenegro highlighted China’s status as the world’s largest exporter, suggesting that it makes sense for a major exporter to prefer receiving payments in its own currency rather than in dollars. The use of the yuan in foreign trade is an effective way for Bolivia to address its economic challenges. Since February, Bolivian importers and exporters have been able to trade in yuan through Banco Union, a state-owned bank. Additionally, the bank has allowed transactions in Russian roubles since March, despite economic sanctions imposed on Russia.
Notably, the yuan has already accounted for 10% of Bolivia’s foreign trade from May to July, with financial transactions worth 278 million Chinese yuan ($38.7 million). This demonstrates a growing acceptance of the yuan within the country’s trade ecosystem. Bolivia’s engagement with China goes beyond currency exchanges; it is also focused on harnessing the vast lithium resources in the country.
China, along with Russia, has been investing in Bolivia’s lithium industry to meet the rising global demand for the metal used in electric vehicle batteries. Earlier this year, three lithium deals were signed, with two Chinese and one Russian firm committing a total investment of $2.8 billion, potentially making part of the investments in yuan. Bolivian Economy Minister Montenegro explained that utilizing the Chinese currency could also help in repaying outstanding loans from China and boost trade integration among Latin American countries.
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Bolivia’s adoption of the yuan for trade purposes aligns with similar movements by neighboring countries. Both Brazil and Argentina have also taken steps to facilitate trade in yuan. As Latin America embraces alternative currencies, the region is diversifying its economic strategies and aiming to reduce dependency on the US dollar.
Overall, Bolivia’s shift towards using the yuan for foreign trade showcases the country’s determination to overcome its dollar shortage and enhance trade relationships with China and Russia. By embracing the yuan, Bolivia is not only addressing its immediate financial challenges but also positioning itself to benefit from the economic opportunities presented by the growing demand for lithium and trade integration in Latin America.
