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China and Brazil reach deal on currency exchange

March 26, 2013

Two of the most powerful BRICS nations have recently agreed to a currency exchange program that could greatly affect the U.S. economy. Multiple news sources are reporting that China and Brazil have agreed to trade in their own currencies up to $30 billion per year.

This agreement comes only hours before the start of the forthcoming BRICS summit in Durban, South Africa, and was first announced at the Rio+20 environmental summit held last year. The deal, which is expected to last for three years, will ensure the flow of Brazil's soy, iron ore and other exports, as well as China's manufactured goods, between the two countries.

"China has a lot of trade interest in Latin America's raw materials but more interesting from China's perspective is access to the region's large consumer market and beyond that, financing of infrastructure," said Flavia Cattan-Naslausky, director of Latin American foreign exchange strategy at the Royal Bank of Scotland, as quoted by the Financial Times.

Analysts believe the plan is only the latest stride in China's move to place the renmibi as a global reserve currency. The Times reports that the Chinese government has been posing similar currency exchanges with countries like Australia and Argentina.

Brazil's infrastructure and existing partnerships with China made it the obvious choice for such an arrangement. Trade between China and Brazil equaled roughly $75 billion in 2012, according to Reuters.

The forthcoming summit in Durban could help to restructure the world economy, as the 5 BRICS nations (Brazil, Russia, India, China and South Africa) are working to establish a joint foreign exchange reserves pool and an infrastructure bank.  This is the fifth such meeting between representatives of these nations since 2009.

While the move will help to facilitate the bilateral financial cooperation between the two nations and secure financial stability for the BRICS nations, its holds further implications to the global economy. Whether the accord will lead to a renmibi-led global economy remains to be seen, though analysts believe the move will bear significant impact on many of both countries' trading partners.

Important financial news like this often require a lot of communication between individuals abroad. That's why it is wise to invest in calling cards to China or Brazil, as these cards can facilitate conversations that may have otherwise gone unspoken.


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