The presidents of the central banks of Argentina and Paraguay, Guido Sandleris and José Cantero Sienra, signed yesterday in Washington the Agreement of the Local Currency Payment System (SML). Also present at the event were Norberto Pagani, senior manager of International Relations and Agreements, and Carlos Carvallo, director of the Central Bank of Paraguay.
This agreement completes the possibility of making cross-border payments and collections in local currencies between MERCOSUR member countries. The SML between Argentina and Brazil has been in force since October 3, 2008 and between Argentina and Uruguay since April 3, 2017.
The SML is based on a bilateral agreement between the two central banks that facilitates cross-border payments and collections in Argentine pesos and Paraguayan guaraníes. The implementation of the SML seeks to promote foreign trade in local currencies, deepen the market for those currencies and reduce transaction costs.
The SML is an additional payment mechanism to the existing ones and its use is voluntary by exporters and importers from both countries. This system allows economic agents to become familiar with the local currencies of both countries, advance in the integration process and strengthen existing links between the signatory institutions, increasing the liquidity and efficiency of the Paraguayan Guarani/Argentine Peso exchange market.
The SML cycle is initiated by the importer of goods, who executes the payment in local currency equivalent to the value of the agreed operation in the exporter’s currency. The financial institution transfers the funds to its respective central bank. Central banks carry out bilateral clearing of operations on a daily basis. To do this, they convert the securities into US dollars. Finally, central banks transfer credit in local currency, via financial institutions, to exporters in their country.
