China and Brazil have decided to forego using the US dollar, and will instead trade using their respective currencies.
China and Brazil have signed a deal to use local currencies instead of the US dollar for bilateral trade in an attempt to boost investment between the two countries and reduce reliance on the world’s reserve currency. “The expectation is that this will reduce costs… promote even greater bilateral trade and facilitate investment,” reads a statement from the Brazilian Trade and Investment Promotion Agency.
The deal is significant as China is Brazil’s fifth biggest trading partner, while the latter country is the largest economy in South America. By using their own currencies, the two countries can avoid geopolitical risks associated with the greenback, particularly during times of heightened tensions between the US, Russia, and China. The move also highlights China’s efforts to deepen economic ties with emerging markets, particularly in Latin America, as it seeks to expand its influence and reduce its dependence on the West.
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Similarly, the Association of Southeast Asian Nations (ASEAN) is also seeing opportunities in reducing trade in vulnerable western currencies, and is currently discussing dropping the US dollar, euro, pound, and the yen. “Efforts to reduce dependence on major currencies through the Local Currency Transaction (LCT) scheme will be discussed. This is an extension of the previous Local Currency Settlement (LCS) scheme that has already begun to be implemented between ASEAN members,” a report from ASEAN said.
Information for this briefing was found via the Associated Press and the sources mentioned. The author has no securities or affiliations related to the organizations discussed. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
