Trade between China and Brazil can be settled in local currency，it will promote expanded trade and investment between the two countries.
Brazil has reached an agreement with China to allow bilateral trade transactions in its own currency, the Brazilian Foreign Ministry announced on March 29 local time, citing a statement from Brazil's Trade and Investment Promotion Agency.
According to the agreement, China and Brazil will be able to exchange the Chinese yuan directly with the real in large-scale trade and financial transactions, bypassing the U.S. dollar, the Brazilian news website g1 reported on Monday. The agreement is not mandatory, and dollars can still be used in transactions. The agreement also allows the People's Bank of China to select an institution permitted to operate foreign exchange business in Brazil as the "Offshore Clearing Bank in Brazil." "This is a Chinese initiative that is already underway in more than 25 countries," g1 said, quoting Brazil's central bank on the deal.
Tatiana Rosito, secretary of international affairs at Brazil's finance ministry, said the central bank and the People's Bank of China had reached a preliminary agreement in January, according to Brazilian media. In February, the People's Bank of China announced on its official website that it signed a memorandum of cooperation with the Central Bank of Brazil to establish RMB clearing arrangements in Brazil. Rosito stressed that "greater predictability of the exchange rate" was important for investors and businessmen, with foreign exchange taxes a top concern for Brazilian businessmen, and trade in the local currency helping to increase bilateral exchanges. Brazil's trade and investment Promotion Agency said in a statement that settling in local currencies would reduce the cost of trade between the two countries while promoting greater development of bilateral trade and facilitating investment.
Jin Xiaowen, a researcher at the National Academy of Development and Strategy at Renmin University of China and secretary-general of the Center for Latin American Studies, told the Global Times on Wednesday that the local currency settlement between China and Brazil will inevitably reduce investment costs, which will promote the expansion of trade and investment between the two countries. In the past, Brazil's domestic protectionist tendencies, the direct settlement in yuan is a kind of welcome to Chinese investment in Brazil. In addition, Brazil is the largest economy in Latin America, and this agreement has a certain spillover effect. Other Latin American countries are likely to sign relevant agreements with China, which will help expand the influence of RMB in Latin America and further promote the trade and investment between China and Latin America.
China has been Brazil's largest trading partner since 2009. According to Chinese customs statistics, bilateral trade in 2022 was $171.49 billion, of which Brazil's trade surplus with China reached $29 billion, accounting for almost half of the country's total trade surplus. In addition, Brazil is the leading country for Chinese investment in Latin America. Between 2007 and 2020, China invested $70.3 billion in Brazil.
Xu Weihong, vice president of Yongxing Securities, told the Global Times that the agreement allows bilateral trade to be priced and quoted in yuan instead of US dollars. "Through this agreement, the role of the renminbi in the Brazilian banking system will be significantly enhanced and the renminbi will become one of the major international currencies, from central banks to commercial banks. This has a substantial effect on the internationalisation of the renminbi." Mr. Xu noted that the transaction process could still use dollars. "In terms of exchange rate risk avoidance tools for trade, there is still a significant gap between the RMB and the US dollar and the euro." However, for bilateral trade, Xu believes the local currency settlement agreement will reduce the cost of trade services and improve trade facilitation.