Brazil’s finance minister, Guido Mantega, says that the country will sign an agreement with China within weeks, under which the two countries will each be able to tap the other’s central bank and swap up to US$30bn in their two currencies. China is Brazil’s biggest trading partner.
Under the planned bilateral swap arrangement, Brazil will be eligible to take up to 190bn yuan from the Chinese central bank, while China can take 60bn real from its counterpart in Brazil. The money will be available to support trade or to boost reserves during times of crisis.
The proposed transaction was discussed earlier this week by leaders of the so-called BRIC emerging market economies (Brazil, Russia, India and China) at the G20 summit in Mexico. Together the four BRICs together with South Africa, which is often added as a fifth member these days, have a total of US$4 trillion in foreign exchange (FX) reserves.
Speaking to reporters in Rio de Janeiro on 21 June, Mantega added that Brazil’s swap with China would be the first step in a broader reciprocal swap agreement with Russia, India and South Africa, to pool resources for better withstanding the global financial crisis. This should work towards preventing a repetition of the liquidity shortage of 2008, which adversely affected trade.
The Brazil-China accord is the latest in a series of currency swap agreements by China, which has negotiated similar deals with about 20 other countries, ranging from Australia and the United Arab Emirates (UAE) over the past four years.
Separately, the Central Bank of Brazil (CBB) announced the signing of a letter of intent with the China Banking Regulatory Commission (CBRC) for improving their exchange of information and increasing cooperation on banking sector supervision. It added that the agreement aimed to reinforce oversight of Brazilian financial institutions with branches, offices or subsidiaries in China and of Chinese banks operating in Brazil.
Brazil’s central bank added that the initiative was in line with the recommendations of the Basel Banking Supervision Committee and would contribute to the “consolidated global strengthening” of supervision of banks operating in both countries.
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