China and Brazil agreed to establish a swap line of about US$30 billion in their respective currencies as they work to reinforce the clout of the world's largest emerging markets on a global stage.
China, the world's second-biggest economy, is promoting the role of the yuan in international trading and financing as it moves to reduce its control over the currency and open up its financial markets.
Its agreement with Brazil forms part of the message from BRICS countries, which include Russia, India and South Africa, that existing financial architecture is inappropriate to deal with the world's main challenges, said Joao Augusto de Castro Neves, an analyst at political risk consultancy Eurasia Group.
"There is economic justification for the swap deal, but there are undeniable political repercussions," he said. "The BRICS have been one of the main items in Brazil's foreign policy agenda over the past three or four years, so there's interest in maintaining the BRICS as a relevant forum."
The currency swap is worth 190 billion yuan (HK$235 billion) or 60 billion reais, the People's Bank of China said on its website yesterday. China is Brazil's biggest trading partner, with imports and exports between the two countries reaching US$75.5 billion last year. China's central bank said the three-year deal will only be used in case of a credit crisis and could be rolled over after expiration.
"Independently of global financial conditions, with this swap Brazil and China will have the necessary financing to keep our bilateral trade relations as they are today," Brazil's central bank President Alexandre Tombini said.
"The idea is not new, but is important. The agreement is another important step in the direction of a deeper integration between central banks."
The BRICS nations have combined foreign-currency reserves of around US$4.4 trillion and account for 43 per cent of the world's population.