BCRA makes RMB 130 billion drawdown under currency swap agreement with PBOC in 2019

On April 2009, the Central Bank of the Argentine Republic (Banco Central de la República Argentina, or BCRA) and the People’s Bank of China (PBOC) signed an RMB 70 billion ($11 billion) bilateral currency swap agreement to facilitate trade and improve foreign currency liquidity in Argentina. The agreement was extended for an additional three years in July 2014. BCRA made (gross) drawdowns under the currency swap agreement equivalent to approximately RMB 14.2 billon between October 2014 and December 2014 — through an RMB 5.2 billion ($814 million) drawdown on October 30, 2014, and RMB 3 billion ($507 million) drawdown on November 17, 2014, and an RMB 6 billion ($1.14 billion) drawdown in December 2014. These borrowings carried an interest rate of SHIBOR plus a 4% margin (400 basis points) and a 1-year maturity length. BCRA also made (gross) drawdowns under the currency swap agreement equivalent to approximately RMB 70 billion — including but not limited to an RMB 2.5 billion ($400 million) drawdown in early January 2015, an RMB 2.5 billion ($400 million) drawdown in late January 2015, and a $1.5 billion drawdown in March 2015. These borrowings also carried an interest rate of SHIBOR plus a 4% margin (400 basis points) and a 1-year maturity length. Then, on December 16, 2015, BCRA and PBOC signed a supplementary agreement, authorizing (a) the conversion of the RMB that BCRA receives from PBOC in exchange for Argentine pesos (ARS) into any currency (including U.S. dollars) and (b) the use of such funds to service foreign debt obligations. These concessions from PBOC were valuable to BCRA because the Government of Argentina was having difficulty borrowing dollars on international markets after defaulting on its debt in July 2014. During calendar year 2016, BCRA made (gross) drawdowns under its currency swap agreement with the PBOC equivalent to approximately RMB 70 billion. Then, on July 18, 2017, BCRA and PBOC extended their RMB 70 billion (ARS 175 billion) bilateral currency swap agreement by an additional three years. During calendar year 2017, BCRA made (gross) drawdowns under its currency swap agreement with the PBOC equivalent to approximately RMB 70 billion. Then, in 2018, BCRA and PBOC amended the July 18, 2017 agreement to increase the size of the currency swap from RMB 70 billion to RMB 130 billion (approximately $19 billion) — roughly equivalent to one-third of the BCRA’s foreign reserve assets. The 2018 agreement also specified that the PBOC could reject currency swap drawdowns by the BCRA if the Government of Argentina’s IMF standby agreement was suspended or cancelled. During calendar year 2018, BCRA made (gross) drawdowns under its expanded currency swap agreement with the PBOC equivalent to approximately RMB 130 billion — including but not limited to an RMB 60 billion ($8.7 billion) drawdown on December 17, 2018. These borrowings carried an interest rate of SHIBOR plus a 4% margin (400 basis points) and a 1-year maturity length. During calendar year 2019, BCRA made (gross) drawdowns under its expanded currency swap agreement with the PBOC equivalent to approximately RMB 130 billion. These borrowings carried an interest rate of SHIBOR plus a 4% margin (400 basis points) and a 1-year maturity length. The 70 billion currency swap agreement was extended for an additional 3 years on July 17, 2020 and the RMB 60 billion currency swap agreement was extended for an additional 3 years on September 17, 2020. During calendar year 2020, BCRA made (gross) drawdowns under its expanded currency swap agreement with the PBOC equivalent to approximately RMB 130 billion. These borrowings carried an interest rate of SHIBOR plus a 4% margin (400 basis points) and a 3-month maturity length. BCRA also made (gross) drawdowns under its expanded currency swap agreement with the PBOC equivalent to approximately RMB 130 billion during calendar year 2021. These borrowings carried an interest rate of SHIBOR plus a 4% margin (400 basis points) and a 3-month maturity length. As of December 2021, total PBOC swap debt (RMB 130 billion or $20.4 billion) represented 51% of the BCRA’s foreign currency reserves. The BCRA’s 2014 drawdowns are captured via Project ID#89411. Its 2015 drawdowns are captured via Project ID#89414. Its 2016 drawdowns are captured via Project ID#95682. Its 2017 drawdowns are captured via Project ID#95912. Its 2018 drawdowns are captured via Project ID#89416. Its 2019 drawdowns are captured via Project ID#96263. Its 2020 drawdowns are captured via Project ID#96264. Its 2021 drawdowns are captured via Project ID#96322. According to the BCRA, the total (principal) amount outstanding under the PBOC currency swap facility was RMB 14.2 billion ($2,320,635,000) in 2014, RMB 70 billion ($10,783,360,000) in 2015, RMB 70 billion ($10,072,230,000) in 2016, RMB 70 billion ($10,750,040,000) in 2017, RMB 130 billion ($18,969,730,000) in 2018, RMB 130 billion ($18,605,990,000) in 2019, RMB 130 billion ($19,893,250,000) in 2020, and RMB 130 billion ($20,406,880,000) in 2021

Additional details

1. A bilateral currency swap (BCS) agreement — also known as a central bank liquidity swap agreement — is an agreement between the central banks of two countries to exchange cash flows in different currencies at predetermined rates over a specified period of time. Central banks participate in these agreements to facilitate bilateral trade settlements using their national currencies (rather than relying upon a third-party currency such as the U.S. dollar), manage demands from their local banks, and provide liquidity support to financial markets. The party that draws down on the swap line becomes the borrower and the other party becomes lender. During the term of the swap, the party that draws down on the swap line makes either fixed or floating interest payments on the principal amount. If both parties draw down on the swap line, then both parties exchange fixed or floating interest payments on the principal amounts. The 5-step process of drawing upon a currency swap line with the People’s Bank of China (PBOC) can described from the perspective of an importer in a given country (‘Country X’) seeking to settle trade with a Chinese firm in RMB. Step 1: The central bank of Country X and the PBOC activate their currency swap in advance, at which point each party deposits a specific amount of its currency in an account controlled by the other party (i.e. the central bank of Country X deposits local currency in an account controlled by the PBOC, and the PBOC deposits an equivalent amount in RMB in an account controlled by the central bank of Country X). Step 2: A firm in Country X that imports goods from China applies for an RMB-denominated loan from a domestic bank. Step 3: The domestic bank in Country X that receives the loan application then applies to its central bank for an RMB-denominated loan. After a review process, the central bank of Country X notifies the domestic bank applicant that its loan application was approved. The central bank of Country X subsequently requests that the PBOC transfer RMB funds from the central bank of Country X’s swap account within the PBOC to the loan applicant’s account with a corresponding bank in China. Step 4: The domestic bank in Country X directs the corresponding bank in China to transfer RMB funds into a Chinese exporter’s account, and the corresponding bank in China provides RMB funds to the Chinese exporter. Step 5: The importer in Country X repays the RMB-denominated loan at its maturity date. The domestic bank notifies the central bank of Country X of the repayment, and transfers RMB into the central bank’s account within the PBOC through the corresponding bank in China. For the central bank of Country X, the RMB deposit is an asset that should be recorded on its balance sheet as an official reserve asset denominated in RMB. The contra entry of this asset is the liability in the local currency of Country X that represents China’s claims in the central bank of Country X. This should be also recorded on the balance sheet of the central bank of Country X. At the time of the exchange of currencies, it should be recorded as an increase in assets and an increase in liabilities of the monetary authorities in the balance of payments. The reason why the PBOC uses this mechanism to provide renminbi liquidity to other central bank is to increase the speed, convenience, and volume of transactions between the two countries. More detailed information about currency swaps with the PBOC can be found at https://www.imf.org/-/media/Files/Publications/WP/2021/English/wpiea2021210-print-pdf.ashx and https://thechinaguys.com/the-rise-of-the-renminbi-the-reality-of-bilateral-swap-agreements/ and https://www.imf.org/external/pubs/ft/bop/2017/pdf/17-25a.pdf. 2. AidData treats drawdowns under BCS agreements with the PBOC as collateralized loans because, in a BCS arrangement, the currency of the borrower is held as collateral while the lender receives interest on the amount drawn down by the borrower until repayment is made. 3. AidData has estimated the all-in interest rate by adding 4% to the average 6-month SHIBOR rate (3.046%) in 2019. 4. Multiple sources indicate that BCRA fully utilized the RMB 70 billion ($11 billion) bilateral currency swap with the PBOC in 2014 and 2015 According to a IMF Country Report No. 16/346, “[a]s of end-August [2016], gross reserves were US$31.2 billion amounting to 5.4 months of import cover or 71 percent of the IMF’s reserve adequacy metric. A large part of the reserves (US$11 billion) is from a renminbi swap line with China.” El Cronista, a local media outlet in Argentina, reports (see https://www.cronista.com/finanzas-mercados/Renueva-hoy-el-Banco-Central-el-primer-tramo-del-swap-con-China-20151030-0037.html) that the RMB 70 billion was fully exhausted by BCRA by September 2015, which implies that RMB 55.8 billion was drawn down in calendar year 2015 (since RMB 14.2 billion was drawn down in 2014). 5. According to the IMF Country Report No. 16/69, “the government negotiated and activated a renminbi swap line with the People’s Bank of China, drawing a total of US$4.6 billion as of late April 2015.” The same report says that the Government borrowed $2.4 billion from the PBOC in 2014, which implies that $2.2 billion was borrowed between January 2015 and April 2015. 6. According to IMF Country Report No. 18/374, “[o]n December 17, [2018] gross reserves increased by US$8.7bn, reflecting the activation of the augmented BCRA swap with the People’s Bank of China. The augmentation, which was signed during the recent G20, brings the total amount of freely available resources under the swap to US$18.7 billion. Gross international reserves moved up to US$58.6 billion.” 7. For evidence that the BCRA can convert the RMB it receives from PBOC into U.S. dollars (USD), see pg. 9 of the BCRA's 2015 financial statements. See https://www.dropbox.com/s/13bbay8z0psekx3/i2015financialstatements.pdf?dl=0 8. The December 16, 2015 supplementary agreement can be accessed in its entirety via https://www.dropbox.com/s/lm13xl9qwxcdl5c/Supplementary%20Agreement%20regarding%20the%20Bilateral%20Currency%20Swap%20Agreement%20Between%20PBOC%20and%20BCRA.pdf?dl=0. 9. Most central banks publish their end-of-year outstanding PBOC swap debt, but only a few report detailed transaction-level data on drawdowns during the year. Therefore, if no information on drawings is available, AidData assumes that total drawdowns during the reporting period equal the amount outstanding at the end of the reporting period (and vice versa). Since the (de jure) maturities of PBOC swap drawings are 12 months or less, this creates a lower bound estimate for actual drawdowns under the PBOC swap line. 10. PBOC swap debt is frequently rolled over. In central bank reports where one can only observe the year-end outstanding amount, no distinction between rollovers and drawdowns is possible. In these cases, one can derive (new) drawdowns as the difference between the current and last year’s outstanding swap debt stock. This measure essentially captures net lending through the PBOC swap line.

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