UPDATE 2-China, Argentina sign 70 bln yuan currency swap

BEIJING, March 30 - China and Argentina have agreed a 70 billion yuan ($10.2 billion) currency swap so the Latin American country can pay for Chinese imports in yuan, a top Chinese official and the Xinhua news agency said on Monday.

The swap was signed in Medellin, Colombia, on the sidelines of the annual meeting of the Inter-American Development Bank, which is being attended by Zhou Xiaochuan, governor of the People's Bank of China.

Zhou said the two countries had agreed to an initial memorandum, but both sides needed to work out final details.

"We signed a memorandum on the framework. Both sides still need to go through domestic procedures to finalize that," he told reporters at the IADB meeting. "It is a pretty new thing, we should take time to consider how well we can do that and how far we can go."

Thanks to the swap, Argentina will not have to pay for imports from China in dollars, the currency in which most international trade is settled, Xinhua said.

"The deal will help stabilize the regional monetary system, guard against financial risks and limit the spread of the crisis at this key moment when it is broadening day by day," the agency said, paraphrasing the official Chinese reasoning behind the agreement.

The swap is the sixth that the PBOC has signed with central banks since December in a drive to free up trade-finance channels that have been clogged by the global credit crunch.

The World Bank reckons the shortfall in global trade finance could be as high as $300 billion.

The problem will be on the agenda when leaders of the group of 20 rich and emerging economies, which include Argentina and China, meet in London on Thursday to tackle the global economic crisis.

China has previously struck swap deals with Malaysia, South Korea, Hong Kong, Belarus and Indonesia.

Huang Zhilong, a researcher with the Chinese Academy of Social Sciences in Beijing, said the swap set a good example for other Latin American countries to follow.

"Since Argentina has done this, why can't other countries like Brazil and Venezuela?" said Huang, who studies Latin American finances. "It's a big deal that will increase China's financial presence in Latin America."