Brazil has provided a vote of confidence in China’s efforts to promote the renminbi as a reserve currency by becoming the biggest economy yet to agree a swap deal with Beijing.
Brazil and China announced the R$60bn (US$29bn) local currency swap after a bilateral meeting between Wen Jiabao, the Chinese premier, and Dilma Rousseff, Brazil’s president, on the sidelines of the Rio+20 environmental summit in Rio de Janeiro.
“It is a measure that reinforces the economies of both countries,” Guido Mantega, Brazil’s finance minister, said late on Thursday night.
China has launched an aggressive campaign of “currency swap diplomacy”, signing about 20 such agreements over the past four years with countries ranging from Argentina to Australia and the United Arab Emirates.
While these have been largely symbolic – only Hong Kong so far has had to activate its swap line after a shortage of renminbi in the territory in 2010 – they are seen as helping the long march of the internationalisation of the Chinese currency.
Last week at the Group of 20 meeting in Los Cabos, Mexico, the so-called Brics nations, which aside from Brazil and China also include India and Russia, discussed establishing more local currency swap agreements among themselves. Thursday’s measure was the first bilateral swap announced since those discussions.
“The two leaders announced a decision to establish a bilateral swap agreement between the two central banks, with a maximum value of R$60bn/Rmb190bn, and instructed the central banks to rapidly implement the agreement,” Brazil said.
The agreement comes amid efforts by Brazil and China to deepen their economic partnership, with Brasília concerned that while it was exporting mostly unprocessed commodities to Asia, it was facing a growing flood of cheap, mostly Chinese, manufactured imports from the region.
In a hint at their bilateral tensions, the two leaders underlined the importance of increasing the value-added component of their exports to each other.
Brazil has taken several measures to curb cheap imports, particularly by taxing overseas goods, such as cars and motorbikes, more heavily than domestically produced items.
“The leaders underlined the importance that bilateral investment flows contribute to the aggregation of value in the production chains of the recipient country,” Brazil said. “They reiterated their promise to resolve trade questions through consultation and friendly dialogue through established institutional channels and condemned any recourse to trade protectionist measures.”
It said China had agreed to allow the local assembly of Brazilian Embraer jets in a sign that a long-running dispute over Beijing’s barring of the aircraft was nearing a resolution. It also said that the Brazilian bus maker Marco Polo was nearing a conclusion of a proposed vehicle joint venture with Chinese producer SG Automotive Group.
Mr Mantega said Brazil and China had agreed to elevate their relationship to the level of a “global strategic partnership” and announced a “10-year plan of co-operation” covering areas from education to space technology that will take effect between 2012 and 2021.
Among the education agreements, China will grant scholarships to 200 Brazilian students a year and the two countries will promote the instruction of their languages in each other’s universities.
They will also open cultural centres and will launch a “Brazil month” and “China month” in each other’s countries starting in 2013.
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