What You Need To Know:
- Brazil and China have agreed to stop using the U.S. dollar in trade and instead use the Chinese yuan and Brazilian real.
- The agreement will decrease Brazil’s use of the dollar and is one of several deals between the two countries planned to be announced.
- China and Brazil will create a “clearing house” mechanism to rapidly exchange reals into yuan and vice versa, eliminating the need for the dollar.
Brazil and China have agreed to conduct trade using the Chinese yuan and Brazilian real, instead of the U.S. dollar. China is Brazil’s largest trade partner, and the deal will significantly decrease Brazil’s use of the dollar in trade.
The agreement is one of several deals planned to be announced between the two countries, following the aggressive efforts by China in the past five years to limit the influence of the U.S. dollar in global trade.
According to Brazilian news outlet G1, China and Brazil will create a “clearing house” mechanism that will eliminate the need for the dollar. The mechanism will have the power of the Industrial and Commercial Bank of China (ICBC) to rapidly exchange reals into yuan and vice versa.
Currently, any trade between Chinese and Brazilian businesses requires each side to convert their national currency into dollars to send to the other side. China has already established similar “clearing houses” in Chile and Argentina, countries that have officially joined the Belt and Road Initiative.
The agreement will likely impact billions of dollars in trade between the two countries. In 2022, Brazil and China documented upwards of $150 billion in trade volume, most of it Chinese exports to Brazil.
Brazil is a major source of key agricultural products, notably soybeans, to China, and Brazil’s exports made up nearly $90 billion worth of trade with China last year. The Chinese Foreign Ministry confirmed the agreement on Thursday, refraining from fully celebrating it but expressing hope that it would facilitate increased trade with Brazil.
Lula, who was expected to travel to Beijing for meetings with Chinese dictator Xi Jinping, was forced to cancel his travels after being diagnosed with influenza-induced pneumonia.
Lula has been one of Latin America’s most vocal proponents of moving away from using the dollar as a common trade currency.
Throughout his candidacy for president last year, the former president promoted the idea of creating a Euro-style common currency for South America, titled the sur, alongside socialist Argentina.