Latin America is becoming a key region for the internationalization of China’s currency, the yuan or renminbi (RMB), as more countries seek to diversify their trade and financial transactions away from the US dollar.
The use of the yuan overtook the use of the dollar in China’s cross-border transactions for the first time in March 2023. This reflects China’s efforts to promote its currency as an alternative in international trade and as a reserve currency, especially in the face of US dollar hegemony.
Several Latin American countries have been increasing their use of the yuan for trade settlement and investment with China, which is their largest trading partner and a major source of foreign direct investment. China imports agricultural commodities and minerals from Latin America, as well as invests in its consumer market and infrastructure sector.
Brazil, the largest economy in Latin America, has been leading the charge in using the yuan instead of the dollar. During his state visit to China in April 2023, President Luiz Inácio Lula da Silva called for an end to overseas trade settlement in dollar and urged BRICS nations to use their own currencies. He also signed more than 20 deals with China, including an agreement to carry out bilateral trade and financial transactions using their local currencies. Earlier that week, the Brazilian branch of the state-owned Industrial and Commercial Bank of China settled its first overseas transaction directly in RMB in the country.
Other Latin American countries that have been using the yuan more include Argentina, Chile, and Mexico. Argentina has been swapping its pesos for yuan since 2014 to boost its foreign reserves and pay for Chinese imports. Chile, which has a free trade agreement and a currency swap arrangement with China, has been issuing panda bonds (yuan-denominated bonds sold by foreign entities in China) since 2017. Mexico, which has a tense relationship with the US under President Donald Trump, has been exploring ways to increase its trade and investment ties with China, including using the yuan for cross-border payments.
The growing use of the yuan in Latin America is part of a broader trend of de-dollarization that is taking place across the world.