China, Brazil sign trade, currency deal before BRICS summit

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  • Posted on March 26, 2013

    By Agnieszka Flak and Marina Lopes


    DURBAN, South Africa (Reuters) – BRICS members China and Brazil agreed on Tuesday a swap line allowing them to trade the equivalent of up to $30 billion per year in their own currencies, moving to take almost half of their trade exchanges out of the U.S. dollar zone.


    The agreement, due to last three years and signed hours before the start of a BRICS summit in Durban, South Africa, marked a step by the two largest economies of the emerging powers group to make real changes to global trade flows long dominated by the United States and Europe.


    “Our interest is not to establish new relations with China, but to expand relations to be used in the case of turbulence in financial markets,” Brazilian Central Bank Governor Alexandre Tombini told reporters after the signing.


    Brazilian Economy Minister Guido Mantega described the deal, called a bilateral currency swap accord, as “a sort of umbrella agreement” but he did not spell out what specific areas or categories of bilateral trade would be affected.


    Trade between the two countries totaled around $75 billion in 2012. Brazilian officials have said they hope to have the trade and currency deal operating in the second half of 2013.


    Nearly half of Brazil’s exports to China consist of iron ore and related products, while soy and soy products make up about a fifth of these exports. China’s biggest exports to Brazil are electronics and machinery.


    Mantega said the trade and currency agreement would act as a buffer against turbulence in international financial markets dominated by the U.S. dollar.


    “If there were shocks to the global financial market, with credit running short, we’d have credit from our biggest international partner, so there would be no interruption of trade,” he added.


    Tombini said the currency swap agreement would not affect Brazil’s international reserves, as neither the Brazilian real nor the Chinese yuan were used for such reserves.


    “This contract has a three-year life and can be renewed,” he added.


    Chinese officials present at the signing did not make comments to reporters but the People’s Bank of China announced on its website the bilateral currency swap agreement worth 190 billion yuan ($30.6 billion). It called it the latest move to facilitate trade and investment between the two countries.


    At the BRICS summit in Durban, the fifth held by the group since 2009, Brazil, Russia, India, China and South Africa are widely expected to endorse plans to create a joint foreign exchange reserves pool and an infrastructure bank. They are also due to discuss trade and investment relations with Africa.


    (Reporting by Agnieszka Flak and Marina Lopes; Writing by Pascal Fletcher; Editing by Jon Herskovitz and Angus MacSwan)


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