As the International Monetary Fund (IMF) announced it would include China's currency, the renminbi or RMB, into its special drawing rights (SDR) basket, Latin American countries have praised the decision with expectations.
This was because the region had seen the RMB's colossal strides, especially this year, though the currency's further and wider acceptance still takes time.
The IMF's decision showed the impact of China's reforms, said IMF Managing Director Christine Lagarde. "The continuation and deepening of these efforts will bring about a more robust international monetary and financial system, which in turn will support the growth and stability of China and the global economy."
On Nov. 14, shortly before the IMF announced the decision, Argentine Vice President Amado Boudou had called for speeding up the RMB's internationalization, and urged the IMF to include the Chinese currency into the SDR basket.
"We must change the global financial order. China and Argentina have always been firm in defending the consumption capacity of their populations," said Boudou.
Boudou's positive tone was no surprise, considering how Argentina has benefited from the Chinese currency.
In July 2014, with a debt default looming large, Argentina obtained a currency swap from Beijing worth 11 billion U.S. dollars. With global markets being reluctant to lend, the offer was a shot in the arm for Buenos Aires' foreign reserves.
According to Ramiro Castineira, chief economist at Argentine consultancy firm Econometrica, the swap "saved 2015" for Argentina and "isolated it from international economic reversals."
"Argentina needs financing ... it becomes imperative to sustain the current levels of consumption," said a report of Econometrica.
The fact that the RMB was the currency of choice for this need testifies to its internationalization. However, the IMF would not have been satisfied if its members viewed the RMB as a rescue currency only. The currency had to prove itself in a number of everyday financial transactions first.
This process advanced in May when China agreed to grant a quota of 50 billion RMB (about 7.8 billion U.S. dollars) to qualified foreign institutional investors in Chile, where the China Construction Bank was also appointed as an RMB clearing bank, the first of its kind in Latin America.
In September, the Industrial and Commercial Bank of China was designated as a clearing bank for RMB transactions in Argentina, facilitating bilateral trade and investment.
Further progress was made in October with the launch of the China International Payments System (CIPS), supervised by the People's Bank of China. The CIPS allows 19 Chinese banks and 176 financial institutions around the world to clear cross-border RMB payments.
However, despite successes in Chile and Argentina, the RMB's internationalization process is slower in some other countries.
Take Mexico as an example. With over 70 percent of Mexico's foreign trade done with the United States and due to the presence of the North American Free Trade Agreement, the entry barrier for American firms is far lower than that for their Chinese competitors.
According to Enrique Dussel Peters, director of the China-Mexico Studies Center at the National Autonomous University of Mexico, this situation has prevented the RMB from taking as much hold in the country.
"Next to other countries in Latin America, Mexico is not seen as an immediate investment destination in China. Companies and ambassadors alike need to work to show that...Mexico has the capacity to allow Chinese companies, such as Huawei, to flourish," Peters said.
"Mexico has major infrastructure needs that China's experience will be valuable in meeting. Once this situation changes, the People's Bank of China may be more likely to open a clearing bank for RMB transactions in Mexico," he added.
However, for Peters, this will not change soon, as the RMB is expected to have very little impact on Mexico in the short and medium term.
"I do not see Mexico's central bank including the RMB in its foreign reserves. While China is Mexico's second-largest trading partner, it is still far behind the United States, on which we are dependent," he said.
