The two countries agree to a swap deal worth up to US$ 30 billion in their respective currencies. China is thus imposing the yuan as a global currency on emerging countries.

Rio de Janeiro (AsiaNews) - Brazil and China have agreed to a currency swap deal that would allow their respective central banks to exchange local currencies worth up US$ 30 billion. Currency swaps allows countries to settle their accounts in local currencies at a fixed rate. "As international credit remains scarce, we will have enough credit for our transactions," Brazil's Finance Minister Guido Mantega said.

The deal is one of a handful of trade agreements between Brasilia and Beijing announced during the UN Rio+20 sustainable development summit, which ended today without any result.

The aim of these deals is to increase investment and trade flows for the coming decade. A currency swap agreement "will allow the countries to boost financial reserves, which is useful at a time of financial stress," Mr. Mantega said.

The deal , whose details will be hammered out in the coming weeks, will be the first step in closer Sino-Brazilian cooperation, which could be extended to other emerging economies.

At the G-20 meeting earlier this week in Mexico, the so-called BRICS countries (Brazil, Russia, India, China and South Africa) also proposed a reciprocal swap fund, Mr. Mantega noted.

However, it is Beijing that is in the driver's seat. Since March, it has reached a similar deal with Australia (worth A$ 31 billion).

This way, China can extend the global reach of its own currency (yuan renmimbi) as an international currency of exchange and investment, analysts and economist said.

"The motivation is to be less reliant on the US dollar," Sean Callow, chief currency strategist at Westpac, said. Indeed, "We will see firms in the two countries settle their accounts in local currencies," he added.

For Mr Callow, with an increasing number of countries signing such agreements with China, Beijing's plans for a more global role for the yuan has received a major boost.

 

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• brazil
• currency
• swap