LatinNews Daily Report - 27 March 2013

ECONOMY | Brazil-China ink US$30bn currency swap deal. On 26 March during the fifth summit of the Brics countries (Brazil, Russia, India, China and South Africa), in Durban, Brazil’s central bank president, Alexandre Tombini, confirmed a new direct currency swap deal with China designed to safeguard trade between the two  countries. First announced by President Dilma Rousseff and China’s Premier Jen Wiabo in late 2012 on the sidelines of the Rio+20 summit on the environment, the deal allows the respective central banks to swap local currencies worth up to 190bn yuan or R$60bn (US$30bn) a year. It will be valid for three years, extendable. The deal agreement will take almost half of their trade exchanges out of the US dollar zone, Tombini said yesterday. Brazil’s finance minister Guido, Mantega, who formally inked the deal with his counterpart, Lou Jiwei, said the deal was "a sort of umbrella agreement” to act as buffer against shocks to the international financial market. Bilateral trade between China and Brazil was valued at about US$75bn in 2012. However, given that about half of Brazil’s exports to China are dollar-denominated commodities (including soya and iron ore), most economists view the deal as more symbolic than anything - especially given that both countries have ample stocks of foreign reserves. Yet it represents an important boost to China’s efforts to ‘internationalise’ the Renminbi by promoting its use as a global reserve currency. The US$30bn represents eight months of exports from Brazil to China and 10 months of imports to Brazil from China, Tombini noted, explaining that the central banks would deposit the money with each other in their respective currencies for at least three years.

End of preview - This article contains approximately 282 words.

Subscribers: Log in now to read the full article

Not a Subscriber?

Choose from one of the following options

• Subscribe
• Sign up for a one-time, 14-day trial