China and Brazil agreed to trade in their own currencies, discarding the U.S. dollar as a go-between, the Brazilian government announced on Wednesday

China and Brazil have reportedly reached a deal to trade in their own currencies, ditching the US dollar as an intermediary, as part of the rising global use of the Chinese renminbi.

The deal will enable China and Brazil to conduct their massive trade and financial transactions directly, exchanging renminbi for reais and vice versa instead of going through the dollar, AFP reported on Wednesday, citing the Brazilian government.

“The expectation is that this will reduce costs… promote even greater bilateral trade and facilitate investment,” AFP quoted the Brazilian Trade and Investment Promotion Agency as saying.

This followed what the People’s Bank of China, the country’s central bank, said in February about it signing a memorandum of cooperation with its Brazilian counterpart on establishing renminbi clearing arrangements in Brazil.

The arrangements will boost the usage of renminbi for cross-border transactions between enterprises and financial institutions in the two countries and further facilitate bilateral trade and investment, the PBOC said.

The deal will be of considerable benefit to both nations, enabling them to make large-scale trade agreements directly, using the Chinese yuan and Brazilian reais.

The two nations completed USD 150.5 billion in bilateral trade last year, making China Brazil’s largest trading partner.

China overtook the United States as Brazil’s top trading partner in 2009. Brazil is currently the largest recipient of Chinese investment in the continent, investing heavily in high-tension electricity transmission lines and oil extraction.

The move is likely to cement Brazil’s status as South America’s largest economy and for China, the deal represents another step towards rivaling the U.S. global economic hegemony.

“The expectation is that this will reduce costs… promote even greater bilateral trade and facilitate investment,” the Brazilian Trade and Investment Promotion Agency explained in a statement.

A preliminary agreement had already been put in place in January and was given the seal of approval following a China-Brazil business forum in Beijing.

Brazilian President Luiz Inacio Lula da Silva, who was scheduled to be present, was unable to attend the forum after suffering a bout of pneumonia.

Brazil is not the first country to put in place such a deal with China, as Russia, Pakistan, and several other countries have similar currency agreements.

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