Rouble Swap Shows China Challenging IMF as Emergency Lender

China is stepping up its role as the lender of last resort to some of the world’s most financially strapped countries.

Chinese officials signalled on the weekend they are willing to expand a $24 billion currency swap program to help Russia weather the worst economic crisis since the 1998 default. China has provided $2.3 billion in funds to Argentina since October as part of a currency swap, and last month it lent $4 billion to Venezuela, whose reserves cover just two years of debt payments.

By lending to nations shut out of overseas capital markets, Chinese President Xi Jinping is bolstering the country’s influence in the global economy and cutting into the International Monetary Fund’s status as the go-to financier for governments in financial distress. While the IMF tends to demand reforms aimed at stabilizing a country’s economy in exchange for loans, analysts speculate that China’s terms are more focused on securing its interests in the resource-rich countries.

The rouble jumped 4.9 percent to 55.8 per dollar in Moscow on Monday after Hong Kong-based Phoenix TV cited China’s Commerce Minister Gao Hucheng as saying that expanding the currency swap between the two nations would help Russia.

Ukraine’s Allies

The rouble has gained 10 percent over the past two days, paring a selloff that’s made it the world’s worst performing currency over the past six months.

Unlike Ukraine, where the pro-west government received a $17 billion IMF-led bailout this year, Russia, Argentina and Venezuela are often at odds with the U.S. and its allies, essentially keeping them out of the reach of the Washington-based institution. At $3.89 trillion, China holds the world’s largest foreign-exchange reserves, allowing it to fill the void.

China and Russia signed a three-year currency-swap line of 150 billion yuan ($24 billion) in October, a contract that allows Russia to borrow the yuan and lend the rouble. While the offer won’t relieve the main sources of pressure on the rouble- which has lost 41 percent this year amid plunging oil prices and sanctions linked to Russia’s annexation of Crimea - it could bolster investors’ confidence in the country and help stem capital outflows.

Argentina Reserves

Funding from China has helped raise Argentina’s foreign reserves to a 13-month high of $30.9 billion, a boost for a country that has been kept out of international capital markets since defaulting on foreign obligations in 2001.

Argentina received $1 billion worth of yuan earlier this month as part of the three-year currency-swap agreement with China, a central bank official in the South American country, who asked not to be identified because he isn’t authorized to speak publicly, said Dec. 11. That extended the funds transferred to Argentina to $2.3 billion since October. The swap is for a maximum of $11 billion over three years.

$21 Billion

In Venezuela, President Nicolas Maduro last month added $4 billion he borrowed from China to the country’s reserves after they fell to an 11-year low. The country now has about $21 billion in its coffers, equal to the amount of debt it has coming due in 2015 and 2016.

Venezuela, which was already plagued by shortages of everything from toilet paper to toothpaste, is also suffering from the drop in oil, its biggest export. Traders are betting that there’s an 89 percent probability that Venezuela won’t be able to make good on its debts over the next five years.

U.K., Australia

The People’s Bank of China has signed currency-swap agreements with 28 other central banks around the world, including those in the U.K. and Australia, making the yuan an alternative to the dollar for global trade and finance.

By promoting the use of its currency, China acts in its own interests as it challenges the dominance of the U.S. in the global economy.

Two months after Russia annexed Crimea in March, China signed a three-decade, $400 billion deal to buy Russian gas. Oil imports from Russia hit an all-time high in November, according to China’s General Administration of Customs. While the rouble’s depreciation affected Chinese exports to Russia and made it difficult for the two countries to implement joint projects, the challenges shouldn’t be exaggerated.

China has made $47 billion in loans to Venezuela since 2007, making it the country’s largest creditor, according to Eurasia Group, a political consulting firm. Venezuela, which holds the world’s largest oil reserves, repays the loans by shipping crude to China.