The central banks of Brazil (BC) and China (PBC) signed a memorandum of understanding to enable a financial instrument that allows transactions to be made in yuan, Chinese currency, and converted into reais in ” faster and less costly way”.
With the new deal, it will not be necessary to intermediate commercial operations between the two countries with the USD, according to BC, which did not inform when the new payment arrangement will be available to companies.
Since 2009, China has been Brazil’s largest trading partner. In 2022, according to official data, the trade flow reached a record USD 150.5 billion.
According to BC, the agreement provides for the PBC to indicate, at its discretion an institution authorized to operate in foreign exchange in Brazil to act as an “offshore clearing bank in Brazil”.
“This is a Chinese initiative already present in more than 25 countries, the first one started in Hong Kong in 2003”, informed the institution.
BC also informed that the implementation of the arrangement in the country has the potential to bring benefits to the business models that involve the use of the yuan in Brazil, namely increased local liquidity of yuan and maintenance of foreign exchange reserves in hard currency in the country.
Other benefits highlighted by BC include the reduction of intermediaries in international payments and approximation of the Brazilian payments system to the Chinese one, with increased operational efficiency in terms of cost and time reduction.
BC added that the operations, within this new model, are ensured the subordination to the new foreign exchange law, to the pertinent infralegal regulations, and other legal norms.
The Brazilian Trade and Investment Promotion Agency (ApexBrasil) said the new arrangement is expected to “reduce costs” and “promote even greater bilateral trade and facilitate investment.”
China overtook the United States as Brazil’s top trading partner in 2009. Today, Brazil is the largest recipient of Chinese investment in Latin America, driven by spending on high-tension electricity transmission lines and oil extraction.
Officials from both countries reached a preliminary agreement to ditch the U.S. dollar in January and the deal was announced after a high-level China-Brazil business form in Beijing.
Brazilian President Luiz da Silva, sworn in on January, has moved to strengthen ties with Beijing after a period of rocky relations under his predecessor, Jair Bolsonaro, who used anti-China rhetoric on the campaign trail and in office.