The government of Brazil has formally presented a proposal to Argentina to settle bilateral trade transactions in the Chinese yuan. The proposal, which would leverage resources in the Chinese credit swap line, aims to maintain trade between the countries and secure the payment of Brazilian exporters even with Argentina’s low foreign reserves.
Brazil Proposes De-Dollarization of Trade With Argentina
The government of Brazil has made an official proposal to abandon the use of the U.S. dollar in bilateral trade settlements with Argentina, one of its main commercial partners. Fernando Haddad, Economy Minister of Brazil, presented the proposal to the Argentine government on the sidelines of the BRICS leaders summit recently held in Johannesburg.
Quoted by the Argentine state-owned news outlet Telam, Haddad stated:
We sent the Argentine government a guarantee proposal in yuan for Brazilian exports, for Brazilian exporters it is a good thing, it will be good news if Argentina accepts.
If finally agreed upon, this would allow Brazilian exporters to be paid with funds from the Chinese credit swap line that Argentina has leveraged to make different payments to importers and complete debt settlements to the International Monetary Fund (IMF).
Guarantees in Bilateral Trading
The proposal aims to secure the payment of Brazilian exports, seeking to avoid a possible default due to the low level of Argentina’s foreign reserves. The move would allow payment of 200 Brazilian companies that export their goods to Argentina, sidestepping the need for U.S. dollars.
Exporters from Brazil may have some flow of sales of their products with 100% guarantee. For Brazil, there is no problem, because the exchange rate will be done with the yuan for the real and this also assures the National Treasury that there is no risk of default.
This operation would include converting up to $140 million in Chinese yuan to Brazilian reals through the state-owned Banco do Brasil in London.
In Johannesburg, Brazil’s President Luiz Inacio Lula da Silva called for ditching the U.S. dollar, stating that a BRICS common currency “increases our payment options and reduces our vulnerabilities.” Argentina was also recently invited to be part of the BRICS bloc starting in January 2024, making this deal a trade agreement between BRICS countries for next year if Argentina accepts the invitation.