Brazil and China Cut the Dollar Out of Their Trading

It’s Official: Brazil and China Cut the Dollar Out of Their Trading

Remember when I made such a BIG DEAL out about China making swap-line agreements?

In case you missed it, China has been making several swap-line agreements with six different nations around the world since December. A swap-line means that these countries can now trade in their own domestic currencies, without switching to dollars first. In other words, countries are taking steps to ensure they don’t need dollars as much in international trading.

At first, China started making swap-line agreements with nearby countries including Belarus and Indonesia. Seemed innocent enough.

Then China made a swap-line agreement with Argentina in March…the first country in South America to cut the dollar out of their trading. At the time, I told you then that China was trying to gain a wider acceptance for their currency, the renminbi.

I also told you once China had locked up Southeast Asia with similar agreements, Brazil could be next in line. And, the rumors began circulating…

Now I can report that China and Brazil have agreed in principle to remove dollars from trade settlement. They’re planning to replace them with renminbi and real’s respectively! China has already become Brazil’s number one trading partner, and knocked the U.S. down a notch. So if that’s so, it’s not like we’re talking small sums of money folks.

No, this is the BIG KAHUNA for China, and a not so big Kahuna for the U.S. and the dollar.

China claims to be on the dollar’s side, and “sees no alternative currency” as the Bank of China Governor Zhou Xiaochuan implied over the weekend. But in reality, the Chinese are working to get their own currency in the mix.

Looks like it’s all a “plan” to me, folks… Before we know what hit us, renminbi will be everywhere!

For now though, the Chinese renminbi (aka the yuan) is a still a manipulated currency. It’s controlled by Chinese officials. And I don’t see this changing anytime soon.

So you should NOT sell everything you own and go out and buy truckloads of renminbi. I think you would find yourself to be a bit disappointed. The renminbi simply won’t move fast enough to make it worth your while. That is, unless you have time on your side…

On the other hand, the Chinese throwing their support behind the Brazilian real is very interesting. Something to keep in mind.

 

By Chuck Butler - worldcurrencywatch.com