Wednesday, May 20, 2009

Dump the dollar talk -- a little extreme

China and Brazil announced that they have an enhanced trade agreement that proposes the trade is settled between their currencies. This is not dumping the dollar but more about the growing bilateral trade between the to countries. However, the trade takes an interesting twist. China wants to sell its good in Brazil to have another outlet to the US for their manufactured products. China wants the physical commodities from Brazil. This is the classic relationship between the developed world and Latin America playing with two emerging market powerhouses.

The financial form of the deal will be through swaps so that China will take real for their goods and pay for imports from Brazil with renminbi. Exports to China from Brazil are now over $2 billion per month after a big decline in 2008.

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