Brazil Takes Steps to Transact in Yuan as China Ties Grow
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Eoin Treacy's view -
The announcement came during a Brazil-China business forum in Beijing on Wednesday in which government officials and company executives from both sides discussed trade and investment opportunities. Much of Brazil’s agricultural and mineral products are shipped to the Asian nation.
Brazilian President Luiz Inacio Lula da Silva was due to be in China for an official state visit this week, but was forced to postpone after he was hospitalized with pneumonia.
China and Brazil also agreed to settle trade in their own currencies, without the need of an intermediary currency like the US dollar, according to a statement from the Brazilian Trade and Investment Promotion Agency. The expectation is to reduce the costs of commercial transactions with the direct exchange between Brazilian reais and yuan.
Tatiana Rosito, Brazil’s Secretary of International Affairs at the Finance Ministry, says the goal is to boost liquidity of the Chinese currency, giving options to investors and traders.
“It’s not a game changer in relation to the impact on short-term trade, but it has the potential to expand transactions and familiarize agents” with transactions in yuan, she said in a telephone interview.
The entire global financial sector is built on trust. It is logical for countries trading with one another to accept their respective currencies in exchange for goods and services. The reason it is not commonplace is because currencies are volatile and bilateral relationships have no fallback if one of the party’s proves unreliable.
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