China continues to extend its reach into Latin America, world, etc.

Before the much hyped up and protested G20 summit, occurred a more low-key gathering held among members of the Inter-American Development Bank, which ended this Tuesday. To the surprise of no one, the Chinese, and especially Zhou Xiaochuan, the head of China's central bank, seemingly ran the show. How is this possible, you may ask? China became an official member of the Inter-American Development Bank in January 2009, and has been making its presence known ever since.

At this most recent IDB meeting, China agreed to a $10.24 billion currency swap with Argentina, a country whose bonds could be worth next to nothing by 2010. While China has done similar swaps with other countries, this is its first such deal with a Latin American state. So why now? And why with Argentina? 

Writing in FP Passport, Andrew Polk posits two reasons - the first, straightforward, the second "disturbing":

First, as Xinhua reports, the Argentines can essentially use the RMB as extra cash to pay for imports. But one might note that, since the Yuan is not a convertible currency, the money can only be used to purchase goods from -- you guessed it -- China, potentially giving a boost the Dragon's ailing export sector.

The other reason for the swap seems more strategic, especially in conjunction with other currency trades that China has very quietly signed with Malaysia, Hong Kong, South Korea, Belarus, and Indonesia over the past three months. As the Financial Times puts it: 

Economists...see Beijing's currency swap deals as pieces in a jigsaw designed to promote wider international use of the renminbi, starting with making it more acceptable for trade and aiming at establishing it as a reserve currency in Asia, something that would also enhance China's political clout."

To this Tom Pellman, writing in his brilliant blog Double Handshake: China and Latin America (which I highly recommend! Tom has some great insights into the growing Sino-Latin American relationship) adds:

Argentina’s central bank president, Martin Redrado, was quick to point out that the deal is a contingency plan; the country doesn’t need it at the moment. And, another asterisk behind the deal:

“The fact that China represents such a small share of Argentina’s total trade (less than 12 percent) suggests limited impact on FX, but is an important political gimmick at this time (convertibility will remain an issue),” RBS wrote in a research note issued on Tuesday.

Gimmick or no, Zhou proved that even in an international setting like the IDB summit, China will look for ways to extend its reach (and currency priorities).

I couldn't have said it better myself.