The government of President Luis Arce is determined to curb dependence on the U.S. dollar for foreign trade, turning instead to the Chinese yuan. The Andean country has already begun conducting financial transactions worth 278 million yuan ($38.7 million) from May through July, accounting for 10 percent of its foreign trade, Economy Minister Marcelo Montenegro said Thursday in La Paz.
In the face of a longstanding dollar shortage that has drained Bolivia’s national reserves, he said the ministry is also exploring ways to conduct international transactions with China in yuan currency. The goal is to strengthen and expand trade integration with the Asian powerhouse, he added.
The yuan challenges global dollar dominance as Latin American support for alternative currencies grows, especially amid waning faith in the U.S. Federal Reserve to keep interest rates low enough to boost growth. The yuan is one of several currencies making headway in the region. Bolivia’s move is a sign of increasing regional pressure to cut dependence on the U.S. dollar, which is widely considered overvalued.
As a natural gas exporter, Bolivia enjoyed a decade-long economic bonanza because of high commodity prices that boosted foreign investment. It allowed Morales to reduce poverty, build roads, and raise living standards for millions of its citizens. But the influx of dollars also fed corruption and fueled inflation, which has reached double digits.
Bolivia’s natural gas production has been declining, and its dollar reserves have plunged to roughly $4 billion from a record $15 billion in 2014, threatening state finances and the country’s long-defended currency peg with the greenback. It’s a marked shift for a nation that for years enjoyed what many referred to as an “economic miracle” driven by growth, high exports, low inflation, a stable fixed exchange rate, and subsidized gasoline.
Amid the crisis, many Bolivians have chosen to withdraw their dollar savings from banks and are lining up outside the Central Bank for currency. The dollar is so scarce that some residents sell it on the black market for more than the official rate.
The business community in Bolivia’s central city, Santa Cruz, supports incorporating the yuan into international trade. Entrepreneurs in the city of the self-described “national economic engine” say that the move will help them reduce their dependence on the dollar and give Bolivia a competitive advantage. But some economists caution that the government must carefully analyze which countries are the most important for trade and see whether they would accept a currency change. For example, a deal to exploit the Andean nation’s abundant lithium resources is being made with two Chinese and Russian companies, despite economic sanctions imposed against Moscow by Western nations since 2022. Bolivia’s central bank has already warned that introducing the yuan could lead to capital flight from the country, and the government is requiring the local branch of Banco Union to report to its headquarters about such transactions.