Bolivia has joined the growing trend in South America of using alternative currencies in cross-border trade instead of relying on the US dollar. This shift challenges the dominance of the greenback for international financial transactions in the region.
According to Bolivia’s Economy Minister Marcelo Montenegro, the country conducted financial operations amounting to 278 million Chinese yuan ($38.7 million) between May and July of this year. This accounted for 10% of Bolivia’s foreign trade during that period. Montenegro emphasized that exporters of bananas, zinc, and wood manufacturing products, as well as importers of vehicles and capital goods, are conducting transactions in yuan. He also expects the use of alternative currencies to increase over time.
Banco Union, a Bolivian state-owned lender, has been facilitating trade in yuan and the Russian ruble since February and March, respectively. This allows importers and exporters to bypass the traditional reliance on the US dollar. Notably, the partnership between Banco Union and Russia’s Gazprombank has helped Russian companies to continue operating in Bolivia’s market despite the economic penalties imposed on Moscow by the West since 2022, as mentioned by Russian Ambassador to Bolivia Mikhail Ledenev.
Bolivia is following the footsteps of its neighboring countries Brazil and Argentina, which have also turned to alternative currencies in their foreign trade. The decision to explore alternate currencies comes as Bolivia faces severe dollar shortages due to a drop in natural gas production, a critical export for the country. These shortages have had a significant impact on Bolivia’s economy since February.
The diversification of currencies in cross-border trade reflects an effort by South American nations to reduce their reliance on the US dollar. This move aims to insulate their economies from the potential risks associated with fluctuations in the value of the dollar and restrictions imposed by the United States.
The increasing use of alternative currencies in the region is not only driven by economic considerations but also geopolitical factors. It signals a desire by certain countries to strengthen their relationships with China and Russia, which are emerging as key players in the global economy. By trading in yuan and ruble, Bolivia and other South American nations are forging closer ties with these countries, potentially leading to greater geopolitical and economic cooperation in the future.
Overall, Bolivia’s decision to trade in yuan and ruble reflects the changing dynamics in international trade and finance. The country is seeking to diversify its currency usage to mitigate the impact of dollar shortages and deepen its economic relationships beyond the traditional reliance on the US dollar. As other countries in the region follow suit, the dominance of the greenback for international financial transactions in South America may continue to be challenged.