Two major BRIC countries, Brazil and China, have announced that they will swap as much as $30 billion in their respective currencies, a move that symbolises deeper economic cooperation and closer ties between the two emerging markets.
The currency swap, worth 60 billion reais or 190 billion yuan, was at the centre of a wide-ranging trade agreements aimed at boosting investment and trade flows for the coming decade.
The announcement was made yesterday by the Brazilian finance minister Guido Mantega on the sidelines of the UN Rio+20 Summit.
The deal will be the first step in a boarder agreement with the BRICS countries to pool resources together to weather the global financial crisis, as well as reduce their reliance on major trading currencies such as the dollar.
The BRICS group of nations, Brazil, Russia, India, China and South Africa are also discussing the feasibility of a joint development bank, similar to the World Bank or the regional Asian Development Bank, which would allow countries access to funding outside of the global financial system as well as reduce their economic dependency on Europe and the United States.
According to Mantega, the currency swap agreement will also “allow the countries to boost financial reserves, which is useful at a time of financial stress.”
He added that the other BRICS countries have expressed interest in a reciprocal swap fund, which together holds $4 trillion of foreign exchange reserves.
In a series of bilateral accords aimed at creating a “global strategic partnership”, both Brazil and China also pledged to boost research and investment in aerospace and to increase cooperation in the field of oil and gas.
The deal is the latest in a series of similar agreements between China and its trading partners.
China is on an aggressive “currency swap diplomacy” campaign and has signed about 20 such agreements over the past four years with countries ranging from Argentina to Australia and Japan.
While most of such agreements have been largely symbolic, most analysts agree that they are a boost towards China’s bid to internationalise the yuan.