The Governors of the central banks of Argentina and Paraguay, Guido Sandleris and José Cantero Sienra, signed an Agreement for Local Currency Payment System (Sistema de Pagos en Moneda Local, SML) in Washington yesterday. Norberto Pagani, International Relations and Agreements Senior Manager, and Carlos Carvallo, member of the board of Banco Central del Paraguay, also attended the meeting.
This agreement allows for cross-border payments in local currencies among member countries of the MERCOSUR. The SML between the central banks of Argentina and Brazil has been effective since October 3, 2008, and the SML between the central banks of Argentina and Uruguay, since April 3, 2017.
The SML under the bilateral agreement with Paraguay is expected to facilitate cross-border payments in Argentine pesos and Paraguayan guaraníes. Its implementation seeks to boost foreign trade in local currencies, make the market of these currencies deeper and cut down transaction costs.
The SML is one of the payment systems available, and its implementation is up to exporters and importers of both countries. This system enables economic agents to get acquainted with the local currencies of both countries, makes the integration process move forward, and strengthens the existing relationship between the signatory institutions, thus causing the Paraguayan guaraní/Argentine peso foreign exchange market to be more liquid and efficient.
The SML cycle starts when the importer makes a payment in local currency for an amount equivalent to the price of the agreed transaction in the exporter’s currency. The financial institution transfers the funds to the central bank in its country through a bank draft. Central banks clear bilateral transactions daily. Thus, they convert local currency into US dollars. Finally, central banks transfer the amount converted into local currency to exporters through financial institutions.
