Business

China and Brazil in $30bn currency swap agreement

  • 22 June 2012
  • From the section Business
Yuan notes
Beijing has been trying to push the yuan as an alternative global reserve currency

China and Brazil have agreed a currency swap deal in a bid to safeguard against any global financial crisis and strengthen their trade ties.

It will allow their respective central banks to exchange local currencies worth up to 60bn reais or 190bn yuan ($30bn; £19bn).

The amount can be used to shore up reserves in times of crisis or put towards boosting bilateral trade.

China is Brazil's biggest trading partner.

"As international credit remains scarce, we will have enough credit for our transactions," Brazil's Finance Minister, Guido Mantega, said.

A global yuan?

The agreement is the latest in a series of similar deals signed by China with its trading partners.

In March this year, it signed a swap deal with Australia worth up to A$30bn ($31bn; £20bn) to promote bi-lateral trade and investment.

It has also inked currency pacts with Hong Kong and Japan.

Analysts said that Beijing has been trying to push for trade to be settled in yuan, rather than in US dollars, as part of its plans to seek a more global role for its currency.

"The motivation is to be less reliant on the US dollar," Sean Callow, chief currency strategist at Westpac, told the BBC.

"We will see firms in the two countries settle their accounts in local currencies," he added.

Mr Callow added that with an increasing number of economies signing such agreements with China, its plans for a more global role for the yuan had received a major boost.

"It is a big positive for China on that account."

Closer co-operation

While trade between China and Brazil has surged, relations between the two economies have soured in recent times.

In Brazil, there have been concerns that increased imports of low-cost goods from China were hurting the local manufacturing industry.

Beijing, on the other hand, has accused Brazil of raising taxes on Chinese goods in a bid to protect the local industry, a move it says hurts its exports.

Brazil has also levied similar allegations against China.

Despite these tensions, the two countries have agreed to co-operate in various sectors to boost bi-lateral trade.

They said they will work closely in mining, industrial, aviation and infrastructure development.

The agreement also comes at a time when growth in China, the world's second largest economy, has been slowing.

China's economy grew at an annual rate of 8.1% in the first quarter, the slowest pace in almost three years. There are concerns that growth may slow further in the coming months.

However, Brazil's Finance Minister, Mr Mantega said "China will keep being the place where to do business".

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