Brazil and China in R$60B Currency Swap

By Lucy Jordan, Contributing Reporter

BRASÍLIA, BRAZIL – Wary of dependence on the dollar, Brazil and China on Thursday agreed to a R$60 billion currency swap, shoring up their economies and increasing liquidity in the wake of continued instability in Europe and the United States.

President Dilma Rousseff and Chinese Prime Minister Wen Jiabao shake hands during a meeting in Rio last week, Brazil News

President Dilma Rousseff and Chinese Prime Minister Wen Jiabao shake hands during a meeting in Rio last week, photo by Blog do Planalto/Wikimedia Creative Commons License.

“It is a measure that reinforces the economies of both countries,” Brazil’s Minister of Finance Guido Mantega said in a statement. “It is as if we had a reserve of additional resources for times when the international economy is stressed.”

Under the initiative China will be able to access up to R$60 billion from the Brazilian Central Bank for bilateral trade, or to bolster reserves as needed. Brazil will have equal access to 190 billion yuan from China.

The initiative was discussed by BRICS nations at last week’s G-20 summit in Los Cabos, Mexico. It is designed to strengthen ties between the group, which has been lobbying for greater influence at the international table, and to enable them to better withstand the global economic crisis.

The five countries also discussed creating a pool of reserves to dip into in times of need. Together, the BRICS countries have the largest volume of reserves in the world, at US$4.5 trillion.

Antony Mueller, a professor of economics at the Federal University of Sergipe, said that BRICS were keen to find a way to reduce their reliance on the dollar. “Emerging economies, and the BRICS in particular, seek for a way to lessen their dependence on the dollar for international trade,” he said in an email Friday. “Both the real and the yuan do not (yet) qualify as international currencies. Therefore, these countries … establish bilateral currency arrangements.”

China, keen to promote the yuan as a global reserve currency, has established a raft of currency swap agreements with countries including Japan and Thailand in recent years. Brazil is the largest economy to date to sign such an agreement.

The leaders of the BRICS nations pose for a photo during the G-20 summit in Mexico last week, Brazil News

The leaders of the BRICS nations pose for a photo during the G-20 summit in Mexico last week, photo by Blog do Planalto/Wikimedia Creative Commons License.

The deal was made during a meeting between President Dilma Rousseff and Chinese President Wen Jiabao, in Rio for Rio+20. Brazil and China also signed accords designed to boost investment, trade and cultural exchange.

The two countries inked agreements to increase exports of Brazilian aircraft made by Embraer to China, and to establish a factory in China for the construction of aircraft manufacturer’s jets. There will also be increased cooperation in aerospace technologies, with the launch of one joint satellite this year and a second in 2014.

The agreements come in the wake of recent tensions over trade between the two nations, which has hitherto been dominated by Chinese demand for Brazil’s unrefined commodities and Brazilian consumption of cheap Chinese goods. In an effort to bolster domestic manufacturers, Brazil has recently raised taxes on many imports, a move that will disproportionately affect Chinese producers.

Professor Mueller warned that such bilateral trade agreements were suboptimal. “In a wider historical and global perspective bilateral agreement for trade and finance are ‘third-best solutions,’” he said, “The first best being free trade and a global currency with the second-best solution being wide regional free trade areas (such as EU and Euro).”

Accounting for seventeen percent of Brazil’s international trade, or some US$77 billion, China overtook the U.S. in recent years to become Brazil’s biggest trading partner. Mantega said that trade would continue to expand. “China is growing fast and wants to stimulate consumption,” he said. “There’s no limit to how much trade can grow.”

12 Responses to "Brazil and China in R$60B Currency Swap"

  1. Brian F. Gorman, PhD  June 27, 2012 at 6:39 PM

    It is clear that NO one should trust China (the people of China do not even trust China)! If Brasil thinks China is ACTUALLY more stable than the USA, then Brasil is in for a terrible rude awaiting!

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  3. Darryl Crouch  June 29, 2012 at 6:46 AM

    Excellent cooperation between two nations that see the mutual value in preparing for the decline that western nations have put themselves in.

  4. R P Correa  June 30, 2012 at 2:25 AM

    Well, Brian. If we rely on history, We also should not trust United States. As a matter of fact, nobody really does. Brazil is better off with China and Russia than America. You guys have nothing else to offer any longer. A failed empire. ta.

  5. John Flanagan  June 30, 2012 at 6:33 PM

    As a European,congratulations to Brazil. Just a note of caution; keep your banking system under tight control and ensure that the economy avoids a bubble in property/commodities markets. U.S and EU went for light regulation and the bankers bankrupted Ireland,Italy, Spain Greece and Portugal(PIGS). BRICS must learn from this experience. Do not trust the Banks. Regulate them now or regret you placed your trust in them.

    John Flanagan

  6. Charlie Roma  July 2, 2012 at 8:46 PM

    Brazil is free to associate with whoever they want. The BRICs must create a new layer of power and they have all the eceonomic muscle to do so. Brazil is better off with Russia or China or Europe in general than with the USA.
    While the US trades with China and tries to attract Chinese investors and students, Brazil should not do the same. The times of imperailism are gone and
    Why distrust China? You should distrust everyone, especially the USA which has never treated Latin America fairly but took half the territory of Mexico, created Panama, invaded Honduras, Panama, the Domrepublic, Mexico, Granada, Cuba, etc.

  7. Elaine Sun  July 11, 2012 at 9:17 PM

    Re:

    China, … “has established a raft of currency swap agreements with countries including Japan and Thailand in recent years. Brazil is the largest economy to date to sign such an agreement.”

    Isn’t Japan the largest economy among them and Brazil the largest country instead?

    Compared with the skeptical attitude Latin American feels toward US, it is ironic to note that those in China and Iran, among the countries that US politics is most hostile over, have overall pretty favorable view of US (I suspect that most of them don’t know much about US’s involvement in Latin America). The daughter of Xi Jingping, the next leader in China, studies now in Ivy League (Harvard), along with the children of many other highest ranking officials in Beijing.

  8. Pingback: Brazil’s Wealthiest Hide US$520 Billion in Offshore Accounts: Daily Update | The Rio Times | Brazil News

  9. Victor Ruiz  August 20, 2012 at 11:03 PM

    Lots of envious, greedy comments here. Sure countries like the U.S. have corruption and have invaded other countries? So what? Some are valid–to stop communism–which murdered 120 million of its own people–and other nothing more than imperialism. Don’t act sanctimonious. The Spanish, Portuguese, British, French, Arabs, and Mongols and Chinese had their day. They all alternate depending on the foolish mistakes that have been made. Socialism has bankrupted the Western nations. Corruption is far, far more pandemic on a societal level in Latin America than in the U.S. In the U.S., corruption is devastating because it is because of bailouts,etc. In Latin America it is pervasive all throughout society, from local police to the top politicians. Kidnappings in Mexico are pandemic, as well as Argentina. Instead of the typical anti American hate, try adapting to the new reality that the West (Europe, U.S.A., Japan and Australia) is declining. The BRICS will have a try and they are not starting with a clean slate by any means. The question is will the BRICS learn from the mistakes of others? China will own the BRICS anyway. Brazil and Argentina are already trying to limit how much land the Chinese can buy, so obviously they do not want to be monopolized by China either. Besides, the U.S. for better or worse, is already part of Latin America. I know that is a shock for the typical racist Latin American, but the most common last name in the U.S. is Hispanic. It is probably “Garza” or “Garcia”. When Latin America deals with crime and corruption like Scandinavia and Japan, that will be a sight to behold and progress will have arrived. Enough of the inferiority complex. The U.S. at least defended the world from communism. How soon Brazil and the rest of Latin America forget their past near takeover by communists. Now bankruptcy is taking over the western world because of the insidious debt of socialism.

  10. Ustedes son ciegos  August 20, 2012 at 11:10 PM

    If you think China is wonderful you live in a fantasy world. China goes to Africa and plunders the continent. At least Europeans and North Americans hire locals to work their projects. The Chinese send prisoners to work the mines in Zimbabwe. If the workers die, they just bury them there on the spot. Slave labor to do mine work. Charming, ey? Chinese miners try to pay Zambians as little as they can. Pure greed. China has no freedom of speech or association. China is a totalitarian police state. They have a one child policy and little girls are not valued and the death rate for them is much higher than for boys. Selective abortion has greatly reduced the number of women in the population. Latin America doesn’t seem to care. Anything for money. Apparently nobody cares about human rights and democracy anymore. No freedom of religion either. The Chinese are the new colonials, whether you like it or not. They own you or will very soon. Fiat currencies are all devalued anyway. We are all loosers.

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