By Jonathan Wheatley in São Paulo
Brazil and China eye plan to axe dollar Published: May 18 2009
Brazil and China will work towards using their own currencies in trade transactions rather than the US dollar, according to Brazils central bank and aides to Luiz Inácio Lula da Silva, Brazils president.
The move follows recent Chinese challenges to the status of the dollar as the worlds leading international currency.
An official at Brazils central bank stressed that talks were at an early stage. He also said that what was under discussion was not a currency swap of the kind China recently agreed with Argentina and which the US had agreed with several countries, including Brazil.
Currency swaps are not necessarily trade related, the official said. The funds can be drawn down for any use. What we are talking about now is Brazil paying for Chinese goods with reals and China paying for Brazilian goods with renminbi.
Henrique Meirelles and Zhou Xiaochuan, governors of the two countries central banks, were expected to meet soon to discuss the matter, the official said.
Mr Zhou recently proposed replacing the US dollar as the worlds leading currency with a new international reserve currency, possibly in the form of special drawing rights (SDRs), a unit of account used by the International Monetary Fund.
In an essay posted on the Peoples Bank of Chinas website, Mr Zhou said the goal would be to create a reserve currency that is disconnected from individual nations .
In September, Brazil and Argentina signed an agreement under which importers and exporters in the two countries may make and receive payments in pesos and reals, although they may also continue to use the US dollar if they prefer.
An aide to Mr Lula da Silva on his visit to Beijing said the political will to enact a similar deal with China was clearly present. Something that would have been unthinkable 10 years ago is a real possibility today, he said. Strong currencies like the real and the renminbi are perfectly capable of being used as trade currencies, as is the case between Brazil and Argentina.
In what was interpreted as a sign of Chinese concern about the future of the dollar, the governor of Chinas central bank proposed in March that the US dollar be replaced as the worlds de-facto reserve currency.
In an essay posted on the Peoples Bank of Chinas website, Zhou Xiaochuan, the central banks governor, said the goal would be to create a reserve currency that is disconnected from individual nations and modelled on the International Monetary Funds special drawing rights, or SDRs.
Economists have argued that while the SDR plan is unfeasible now, bilateral deals between Beijing and its trading partners could act as pieces in a jigsaw designed to promote wider international use of the renminbi.
Any move to make the renminbi more acceptable for international trade, or to help establish it as a regional reserve currency in Asia, could enhance Chinas political clout around the world.
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