Brazil and China have made significant progress in their economic integration by completing their first bilateral settlement in Chinese yuan, ahead of Brazilian President Luis Inacio “Lula” da Silva’s visit to China. The Industrial and Commercial Bank of China (ICBC) processed the settlement, paving the way for simpler and cheaper payments between the two countries. This development signals a new, simpler way for companies to conduct trade transactions without including a third currency conversion factor. Last month, Brazil and China inked an agreement to settle bilateral transactions using national currencies. This move towards tighter trade integration is expected to result in more integration announcements, including the potential integration of Brazil into China’s “Belt and Road” initiative.
The ICBC is the bank designated by the Chinese government to act as a clearing institution for Brazilian companies determined to use the yuan for international settlements. Guo Haiping, honorary president of the General Chamber of Chinese Entrepreneurs in Brazil, explained that the stability of the yuan was paramount in these operations, helping institutions save on exchange fees. He declared: “The yuan helps reduce the market risk as well as cut trading costs.”
TLC, a Chinese electronics giant, told Global Times that with the integration of yuan settlements, investments are cheaper and less risky because they don’t require conversions to a third currency. President Lula has already called for the abandonment of the U.S. dollar as part of his statements during the appointment of former Brazilian President Dilma Rousseff as president of the New Development Bank in Shanghai, the so-called “BRICS bank.” In a speech at the event, he stated: “I ask myself every night why all countries have to base their trade on the dollar. Why can’t we trade using our own currencies? Who decided that the dollar would be the dominant currency after the gold standard disappeared?”
The integration of the Chinese yuan in cross-border settlements is expected to result in a significant reduction in trade transaction costs for Brazilian companies. This move also signals a shift away from the U.S. dollar as the dominant currency in international trade transactions. The Brazilian government is expected to make more announcements in the coming weeks regarding its integration with China’s “Belt and Road” initiative.
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