China, Brazil in currency deal
Updated: 2012-06-22 12:46
By Qin Jize in Rio de Janeiroand Zhang Yuwei at the United Nations (China Daily)
China's Premier Wen Jiabao shakes hands with Brazil's President Dilma Rousseff during the Rio+20 United Nations Conference on Sustainable Development, in Rio de Janeiro, on Thursday. Roberto Stuckert / Associated Press
China and Brazil on Thursday announced that they'll swap as much as $30 billion in their respective currencies, upgrading relations between the two biggest emerging economies to a "comprehensive strategic partnership".
The currency swap, worth 190 billion yuan or 60 billion Brazilian reais, is the first step toward a broader agreement with Russia, India and South Africa to allow members of the so-called BRICS group of emerging markets to pool resources as a bulwark against financial crises outside their borders, according to Brazil's finance minister, Guido Mantega.
"This reinforces our financial reserves at a moment when the global economy is stressed," Mantega told a news conference at the United Nations' sustainable-development conference, Rio+20, in Rio de Janeiro. "We recognize that developed economies are still in crisis. The BRICS are the most dynamic and we'll continue to expand."
The agreement was sealed while Premier Wen Jiabao was in Brazil, the first visit by a Chinese premier to South America's biggest country in 16 years.
During the meeting, Wen said the two countries should seize the opportunity to enhance financial cooperation, encourage settlement of bilateral transactions in local currencies and direct trading of the real and the yuan.
After nearly 90 minutes of closed-door talks between Wen and Brazil's President Dilma Rousseff, their governments issued a joint statement covering a broad set of agreements that will bind the two countries more closely.
One is a 10-year cooperation pact including expanded two-way investments and increased exports of Brazilian-made goods to China. Another agreement lets Brazil's Embraer sell Legacy 650 business jets in China and manufacture Legacy 600 and 650 aircraft in China through Aviation Corporation of China, or Avic. Embraer said its China joint venture, Harbin Aircraft Ltd, will deliver its first plane in late 2013.
Others deals announced Thursday involve cooperation in a range of sectors - aerospace, technology, agriculture and education.
The two countries decided to establish a foreign minister-level comprehensive strategic dialogue at least once a year and will jointly launch the first of two weather satellites within 12 months.
Analysts say both China and Brazil have cooperated on major international and regional issues to uphold the interests of developing countries. The elevation of their partnership to one of global strategic importance highlights their growing influence in the world economy.
Swap arrangements, which allow nations' central banks to lend money to each other to keep markets liquid, and the pooling of foreign-exchange reserves are contingency measures aimed at containing crises such as the one roiling the eurozone, analysts said.
Colin Bradford, a senior fellow at the Centre for International Governance Innovation, a think tank in Canada, said it makes sense for the BRICS to adopt such a mechanism and shouldn't in any way be seen as a threat to Western economic powers.
The BRICS "are providing the same game to make the global economy work," said Bradford, who attended the G20 meeting in Mexico as an observer. "There is a way in which these kinds of revolutions can be healthy for the overall global community."
Zhang Yuyan, director of the Institute of World Economics and Politics, affiliated with the Chinese Academy of Social Sciences, said it makes sense that emerging-market countries should set up such mechanisms themselves, as they "know their current conditions and demands much better".
Amid the global economic slowdown, Zhang said, the pooling of foreign-exchange reserves will help BRICS countries fight market illiquidity, bolster their immunity to financial crises and increase global confidence.
The currency-swap agreement came out of a meeting between Wen and Rousseff on the sidelines of Rio+20. It went a step beyond the recently concluded G20 summit in Los Cabos, Mexico, where on Monday leaders from all five BRICS members said that they would consider forming a foreign-exchange reserve pool and a swap arrangement as financial problems threaten to spread globally.
Brazil's exports to China in 2011 were $44.3 billion, an increase of more than 43 percent from the previous year, the national Ministry of Development, Industry and Trade reported. In 2009, growth in trade with China made the country -with over 14 percent of total trade flows to the South American nation -Brazil's No 1 trading partner, surpassing the United States.
Lan Lan and news agencies contributed to this story
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