China and Brazil have agreed to establish a currency swap line worth around $30 billion (€23.5bn) in their respective currencies, which they say is designed to protect against future global financial crises.
The deal was first flagged last year and will allow their respective central banks to swap local currencies worth up to 190 billion yuan or 60 billion reais.
Brazil's central bank governor Alexandre Tombini told a news conference in Durban after the signing of the deal that the agreement would secure trade flows between the two even if the global economy takes a turn for the worse.
“The goal of this swap agreement is to facilitate trade between the two countries, independently of international financial conditions,” Mr Tombini said.
China is Brazil’s biggest trading partner, with trade between the two countries worth €59 billion last year. “The idea is not new, but is important. The agreement is another important step in the direction of a deeper integration between central banks.”
The currency swap deal was signed by China's finance minister Lou Jiwei and his Brazilian counterpart Guido Mantega on the sidelines of the fifth Brics (Brazil, Russia, India, China and South Africa) summit being in Durban, South Africa.
China’s deal with Brazil on currencies is a signal of intent and forms part of a message from Brics countries that the existing financial architecture is inappropriate to deal with the world’s main challenges.
The Brics countries have combined foreign currency reserves of €3.4 trillion and account for 43 per cent of the world's population. They are seeking a bigger role on organisations such as the World Bank and the International Monetary Fund to reflect this strength.
China, the world’s second biggest economy, is promoting the role of the yuan, or renminbi (RMB), as an alternative to the US dollar as a global reserve currency.
Leaders of the Brics countries are expected to approve creation of a new development bank and discuss the pooling of foreign currency reserves to mitigate economic crises.
