China and Brazil Sign Currency Swap Agreement

China and Brazil have signed an agreement to trade their own currency to the equivalent of up to US$ 30 billion per year. The swap will take almost half of their trade exchanges out of the U.S. dollar zone. The deal confirms that the two countries are working together to lessen their dependence on the volatility of the American dollar and euro. The currency agreementl was announced before the start of the BRICS summit (Brazil, Russia, India, China and South Africa) in Durban, South Africa, today.

The trade between the two countries totalized 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. According to the agreement, the respective currencies will be deposited in a special bank account without access to credit or remuneration.

According to Alexandre Tombini, the Brazilian Central Bank Governor, the idea is not to establish new relations with China, but rather expand relations in the case of turbulence in financial markets. “The swap won’t affect Brazil’s reserves because it’s in local currency,” he said, emphasizing it won’t affect current trade financing.

As the euro crisis continues on the spotlight and the West shows little signs of growth, the World Bank says the global economic growth is increasingly dependent on the BRICS countries. The five nations are responsible for 27% of global purchasing power and 45% of the world’s workforce.


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