Brazil and China signed the currency swap agreement on 26 March 2013 in Durban, South Africa. The agreement is designed specifically for providing safety against the future global financial issues. The currency swap agreement was first announced in 2012. The agreement will enable the central banks of two countries to swap the local currencies worth 190bn Yuan or 60bn Reais, i.e. 30 billion US Dollar. The agreement will enable smooth bilateral trade irrespective of the financial conditions at the global level.
It is worth noticing that China is not only the second largest economy of the world but also the biggest trading partner of Brazil. The Economy Minister of Brazil announced that in case the global financial issues arise because of shortage of credit, they would have credit backup from their biggest international partner (i.e., China), thereby enabling free flow of trade.
The currency swap agreement between Brazil and China was signed on sidelines of 5th BRICS Summit which was held recently in Durban, South Africa. BRICS refers to Brazil, Russia, India, China and South Africa.
It is also worth noticing that in order to push its currency (Yuan) for a greater international role, China has been continuously trying to promote Yuan as the alternative to US dollar as global reserve currency.
In the backdrop of this push, China also signed the currency swap agreements with certain other crucial trading partners. Earlier in 2013, the Bank of England had announced that it was in negotiations with China for finalising the 3-year currency swap agreement. In 2012, China signed the currency swap agreement with Australia worth up to 30bn Australian dollar for promoting their bilateral trade as well as investment activities. China is also looking forward to the currency swap agreements with Japan and Hong Kong.
Benefit of the Currency Swap Agreements
The agreements like these enable the Central Banks to swap currencies. Apart from this, the agreements like these can also be used by the firms for settling the trade in local currencies instead of the standard US dollars. As of now, the currency of China is partially convertible into other currencies.