Argentina Defies Gold Repatriation Trend, Increasing Shipments to London
The comments below are an edited and abridged synopsis of an article by Jan Nieuwenhuijs, MoneyMetals.com
In July, the Central Bank of Argentina (BCRA) made a significant move by shipping another three tonnes of gold to the United Kingdom, continuing its strategy of leveraging gold for foreign exchange. This follows a similar shipment of three tonnes made just a month earlier, resulting in BCRA now having an estimated 37 tonnes of gold—equivalent to 60% of Argentina’s total gold reserves—swapped in the London Bullion Market.
Argentina‘s approach to utilizing its physical gold reserves is not new. A 2017 report from Argentine newspaper Clarín revealed that BCRA had moved 11 tonnes of monetary gold to London for a swap involving Japanese yen. The central bank stated that storing gold in London, a major financial hub, allows for broader utilization of these assets. This strategic maneuvering highlights Argentina’s ongoing attempts to navigate its economic challenges.
Recent developments indicate that BCRA is continuing to transport gold abroad as it seeks foreign currency. In July 2024, President Javier Milei hinted that the gold being shipped was likely used as collateral for loans, a typical function of such swaps. Argentina’s pressing need for foreign currency is primarily driven by the requirement to pay interest on debts and meet financial obligations.
Cross-border trade statistics confirmed that BCRA sent approximately $150 millions’ worth of gold to the U.K. in June. The U.K., recognized as having the largest gold market globally, recorded this import for the first time, corroborating BCRA’s official statements regarding the shipment of monetary gold abroad. While monetary gold can often cross borders without being reflected in customs statistics, shipments handled by bullion banks must comply with customs regulations, making them visible in trade data.
Recent trade data from the U.K. indicates another three tonnes imported from Argentina in July, suggesting a continuous effort by BCRA to exchange gold for foreign currency. Prior to these shipments, it was reported that about half of Argentina’s gold reserves, estimated at 62 tonnes, were stored domestically while the other half was in London. The recent transfers of six tonnes (three in June and three in July) have shifted the balance, resulting in 37 tonnes of gold now held abroad.
The implications of these gold transfers are significant. If President Milei can effectively stabilize Argentina’s finances, the country may be able to repay its international debt and utilize foreign exchange from trade to unwind these swaps. However, failure to do so could lead BCRA to default on its swap obligations, potentially resulting in the loss of 36 tonnes of valuable gold. In conclusion, Argentina’s ongoing gold shipments to London illustrate the central bank’s strategic efforts to manage foreign currency needs amidst economic turmoil. With a substantial portion of its gold reserves now abroad, the future of Argentina’s monetary policy and financial stability hangs in the balance, dependent on the successful management of its debts and financial commitments.