China is continuing its efforts to turn the yuan into a common global reserve currency, agreeing to a deal with Brazil that would have the countries exchange up to $30 billion in their respective currencies. The exchange can be used to back up reserves in case of financial crisis or towards trade between the countries. China currently stands as Brazil’s largest trading partner.
Early this year, China penned a similar deal with Australia worth $31 billion to promote trade and investment between the two countries. Japan and Hong Kong also signed a currency pact. Currently the U.S. dollar comprises the overwhelming majority of currency within official foreign exchange reserves at around 60 percent, with the Euro at a distant second at around 25 percent. With China projected to become the world’s biggest economy in the coming years, the country has been trying to make the yuan a separate standard to further establish a global role for its currency.
“The motivation is to be less reliant on the U.S. dollar,” Sean Callow, chief currency strategist at Westpac, told the BBC. “We will see firms in the two countries settle their accounts in local currencies,” he added.
Though trade between Brazil and China has been consistent, there has been some diplomatic strife between the two economies. As imports of low-cost Chinese goods make their way into Brazil, some have argued that the local manufacturing industry is suffering. In return, China has accused Brazil of raising taxes on those same goods to protect the local industry, which damages its Chinese exports.
China’s current growth has slowed to its lowest rate in three years, with an annual rate of 8.1 percent in the first quarter. Still, Brazil’s Finance Minister Guido Mantega maintains that “China will keep being the place to do business.”