The Global Times reported on March 30th, citing Agence France Presse, that the Brazilian government announced on Wednesday that it has reached an agreement with China to no longer use the US dollar as an intermediary currency for trade, but instead to use its own currency. The ApexBrasil Trade and Investment Promotion Bureau stated in a statement that "this is expected to reduce costs, promote greater bilateral trade, and provide convenience for investment."

Brazil is the largest economy in Latin America, and this move is a milestone and confirms the global trend of "de-dollarization". What impact does this change have on trade between the two countries? Does it mean that the internationalization of the renminbi will accelerate? Chao News interviewed several Brazilian businessmen and financial experts to gain insights.

Facilitating trade between China and Brazil

Reducing the risk of exchange rate fluctuations

Sunte Ying, a Chinese expatriate who has been engaged in import and export trade in Brazil for more than half a century, imports electric tools, light bulbs and other products from China, and sells Brazilian manganese and lithium mines to China.

Regarding Brazil and China no longer using the US dollar as an intermediary currency, Sunte Ying told Chao News that "this shows the stability of the renminbi and its international status has been raised, and China's stable and strong economy has led to the use of the renminbi for market services."

"Currently, the yuan is gradually appreciating, so the extent to which various countries accept the yuan is increasing." Tan Yaling, Dean of the China Forex Investment Research Institute, told Chao News that "the world is currently in a sensitive period, and the US and Europe are facing many problems. The agreement to settle in domestic currencies in China and Brazil may be related to the current exchange rate trend, the global economic environment, and the positive factors of the Chinese economy. More factors are optimistic about China after the two sessions."

Another Chinese expatriate in Brazil, Shang Guan Jianfeng, mainly imports cosmetics, beauty and nail equipment from China. He told Chao News, "If the US dollar is removed and settled directly in the domestic currency, it will definitely reduce some of the risks brought about by the depreciation of the intermediary currency. The volatility of the Brazilian real and the US dollar is very large, sometimes it appreciates very quickly, and sometimes it depreciates a lot."

"The real depreciated last year and has now appreciated, which is more favorable for imports. Depreciation of the real is better for exports." Sunte Ying said that reducing the "middleman" of the US dollar is always a good thing.

Shang Guan Jianfeng also said: "Whether China and Brazil settle in domestic currency, whether it is the renminbi or the Brazilian currency, has not yet officially begun, and I don't know what the process is. But from my analysis, there are more benefits. For example, I import from China and can settle in reals, and the fluctuation between the US dollar and the Brazilian currency is not affected."

José Ricardo, Chief Executive Officer of the Brazil Business Leaders Organization in China, told Chao News that "now Brazilian trading companies have the choice of using the renminbi in addition to the US dollar, making business operations cheaper and faster. This will save costs and accelerate the establishment of China-Brazil commercial transactions."

Expand mutually beneficial cooperation

China increases investment in emerging industries in Brazil

Since the establishment of diplomatic relations in 1974, trade and investment between China and Brazil have become increasingly close.

According to statistics from the Chinese Customs, in 2022, the bilateral trade between China and Brazil was US$171.49 billion, a year-on-year increase of 4.9%. Among them, China's exports were US$61.97 billion, a year-on-year increase of 15.7%; the import was US$109.52 billion, which was the same as the previous year. According to Brazilian statistics, as of 2022, the trade volume between Brazil and China has exceeded 100 billion US dollars for five consecutive years, and China has been Brazil's largest trading partner for 14 consecutive years.

"Since 2012, Brazil has been China's global strategic partner, and based on mutual respect and mutually beneficial cooperation, the two countries are entering a new era of cooperation." José Ricardo told Chao News.

Recently, Ministry of Commerce spokesperson Gao Feng said at a routine press conference that Brazil is China's largest source of soybeans and chicken and other important agricultural products. Corn and other important agricultural products have also been exported to China and rapidly increased. China is also an important source of direct investment in Brazil, and pragmatic bilateral cooperation has steadily advanced, involving a wide range of fields such as manufacturing, energy, and agricultural infrastructure.

Sunte Ying told Chao News, "Brazil has abundant mineral and agricultural resources, and we have been actively contacting to find the materials needed domestically. In recent years, China has also increased its investment in Brazil's electricity, natural gas and other industries."

"The traditional cooperation between China and Brazil has been strengthened, and based on innovation-driven, sustainable development, and inclusiveness, Brazil and China's cooperation in key areas such as digital economy, 5G telecommunications, intelligent manufacturing, artificial intelligence, sustainable agriculture, etc., is entering another stage." José Ricardo said.

Regarding the new agreement reached between Brazil and China, on March 30th, Foreign Ministry spokesperson Mao Ning responded that China and Brazil signed a memorandum of understanding on the establishment of a renminbi clearing arrangement in Brazil earlier this year, and the establishment of a clearing arrangement for the renminbi between China and Brazil is conducive to the use of the renminbi for cross-border transactions by enterprises and financial institutions in China and Brazil and facilitate bilateral trade and investment.

Tan Yaling analyzed: "This move is more favorable to Brazilian companies. Brazil has a trade surplus with China, and the appreciation of the renminbi is profitable for Brazil. The exchange rate between the Brazilian real and the US dollar has been relatively stable since the beginning of the year. Choosing to settle in the renminbi at this time is a more favorable opportunity. The emphasis in the future should be on sustainability."

"De-dollarization" is an international trend

Accelerating the internationalization of the renminbi

"De-dollarization" is a hot topic in international public opinion.

According to the Global Times, on March 30th, Twitter account holder Jinafi Rockefeller, a former fund manager and author of financial articles for Bloomberg, tweeted: "The US dollar is losing its reserve currency status. De-dollarization is happening around the world. The rate at which central banks bought gold last year was faster than any year since 1987, indicating that these countries hope to support their currencies with gold, not dollars."

Tesla CEO Elon Musk shared his views on this issue on Twitter on March 30th: "This is a serious problem. US policies are too hard, causing all countries to want to abandon the US dollar." Musk added, "In addition, the government's excessive spending forces other countries to bear a large part of our inflation."

Zhou Maohua, a macro researcher at the Financial Market Department of Everbright Bank, told Chao News: "From the trend point of view, over the past few decades, the US dollar's share in the international reserve system has been declining, and various countries' official foreign exchange reserves have tended to diversify, with acceleration in recent years. Some economies have reduced their dependence on the US dollar, which helps to reduce the impact of US Federal Reserve policy spillovers and enhance their macro policy autonomy and independence."

Zhou Maohua analyzed that in recent years, due to the rise of unilateralism and protectionism, the US dollar and some international financial infrastructure have been weaponized, which has affected some economies' concerns about using the US dollar for payment and settlement. At the same time, the US Federal Reserve has implemented unconventional policies for a long time, and its global spillover effects have caused severe fluctuations in the foreign exchange market, negatively affecting global trade. "Direct settlement between China and Brazil using domestic currencies facilitates bilateral foreign trade transactions and helps to avoid the risks of US dollar exchange rate fluctuations, while also promoting the use of the renminbi in international trade and helping to promote the internationalization of the renminbi." Tan Yaling believes that the internationalization of the renminbi is a development concept, but it is more important to pursue the convertibility of the renminbi. "China has strengthened international settlement methods with Brazil, Russia, Saudi Arabia, Pakistan and other countries, but there is a huge difference between international settlement methods and renminbi convertibility. If it is only a settlement method, there may be risks or changes at any time, while convertibility is sustainable."