Local currency settlement may become a new path for China Latin America trade

Bank of China (Brazil) Co., Ltd. (hereinafter referred to as "Bank of China Brazil") handled RMB letter of credit discount business for Brazilian enterprises before the National Day, and immediately converted it into Brazilian real for recording. For the first time in the history of China Brazil trade, it achieved a closed-loop operation of RMB valuation, RMB settlement, RMB financing, and RMB direct exchange of real through the entire process.
It is understood that El Dorado Pulp Company, a highly competitive company in the Brazilian pulp industry, was the first to test this operation. About 40% of the company's products are sold to China. In August of this year, it accepted the request of Chinese importers to use RMB as the contract pricing currency and designated Bank of China Brazil as the receiving bank to attempt RMB settlement. On September 28th, Bank of China Brazil immediately converted the received RMB into real and transferred it to the customer's local account, providing a one-stop solution for RMB settlement for Brazilian exporters. The true realization of the local currency trade advocated by the two governments is another milestone in the history of China Pakistan trade.
The promotion of local currency transactions between the two countries may be driven by various considerations, "Li Renfang, an associate professor at the Latin American Research Center of Southwest University of Science and Technology, said in an interview with China Trade News. On the one hand, in the current complex international situation, the SWIFT based settlement system has been weaponized, and the risks have suddenly become apparent. Countries are looking for hedging tools, and RMB settlement is one of the optional and effective tools; On the other hand, against the backdrop of economic contraction in developed countries, developing countries are facing a shortage of US dollars, especially in Latin American countries. Settlement in RMB can reduce the consumption of US dollar reserves and help maintain the stability of the exchange rate between currencies and the US dollar.
In addition, the value of the RMB is stable, supported by the economic strength of the world's second largest economy, and the scale of China Pakistan trade continues to maintain a high level. Settlement in local currency can be seen as a product of the development of China Pakistan economic and trade cooperation to a new height, reflecting the level of mutual trust between the two sides.
Brazil is the first Latin American country to break through a hundred billion US dollars in trade with China, and China has maintained Brazil's position as the largest trading partner and export market for many years. According to data released by the Foreign Trade Department of the Brazilian Ministry of Development, Commerce, and Services, the bilateral trade volume between Brazil and China reached $102.618 billion from January to August this year. This is the highest record achieved by Brazil in the same period as a single trading partner since it began collecting trade flow data in 1997.
As closely related trading partners, as well as the largest developing country and important emerging market country in the eastern and western hemispheres, China and Brazil are continuously promoting the path of local currency trading between the two sides. At the beginning of this year, the two countries signed a memorandum of cooperation to establish RMB settlement arrangements in Brazil. In April of this year, during the visit of Brazilian President Lula to China, the two countries issued a joint statement on deepening the comprehensive strategic partnership. The two sides agreed to deepen economic and financial dialogue and strengthen local currency trade.

Nowadays, the full process operation from RMB valuation for goods transactions to RMB settlement, financing, and local currency direct exchange for capital transactions has been achieved, which will further reduce the time and cost costs of transactions between the two countries, avoid exchange rate risks, and reduce dependence on third-party currencies or single currency.

Data shows that the RMB is currently the world's fifth largest payment currency, third largest trade financing currency, and fifth largest international reserve currency. The market share of RMB foreign exchange transactions has increased to 7% globally, becoming the currency with the fastest increase in market share in the past three years. The internationalization level of the RMB has steadily improved. In Li Renfang's view, RMB settlement has been carried out and achieved results in Argentina. As a major Latin American country, Brazil, for the first time, has achieved a full process closed-loop trading of RMB with China, which will help provide a model for other Latin American countries and ignite a wave of local currency trading between China and Latin America.
It is reported that during his visit to China, Argentine Economy Minister Sergio Massa promoted the extension of the currency swap agreement with China for three years. In April of this year, Argentina announced that it would use the Chinese yuan instead of the US dollar to settle imports from China.
In the context of sluggish economic growth in major developed countries, China is currently the engine of the global economy and an important export target market for Latin American countries. "Li Renfang said that with the steady development of China Latin American economic and trade cooperation, more trading partners will enjoy the red profit of local currency settlement, and more Latin American countries will explore and try to settle with China's local currency. While experiencing the facilitation of bilateral trade and investment, Further attract new opportunities for economic and trade cooperation between China and Latin America.