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The deeper implications of the Brazil-China currency swap deal.

Last month Brazil and China announced that they had ratified an agreement to exchange $30 billion worth of their respective local currencies (60bn reais and 190bn yuan respectively) to finance bilateral trade.  Under the terms of the pact the central banks of both countries will deposit the money with the other in their respective currencies for an initial period of three years, with the option to extend upon expiry. The banks will also be in charge of expanding existing credit lines to support companies trading. 

The mechanism is designed to protect and strengthen bilateral economic cooperation by ensuring a steady long-term trade relationship shielded from fluctuations in global financial conditions.  The trade volume between Brazil and China has soared more than tenfold from $6.7 billion in 2003 to $75 billion in 2012. 

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