Brazil and China create clearing house to close deals in yuan and reduce the influence of the US dollar

Brazil and China created a “Clearing House” to consolidate their commercial cooperation and reduce American influence in their bilateral business. The clearing house is a banking institution that will allow the granting of loans and closing of deals in yuan, the Chinese currency, between businesspeople from both countries without the US dollar having to be used in the transaction. The Industrial and Commercial Bank of China (ICBC) will be responsible for operating the clearing house in Brazil and ensuring the immediate conversion of earnings into real if they decide to close deals in yuan.

China has been Brazil’s largest trading partner for 13 years. In 2022, the volume of transactions between the two countries reached a record US$150 billion, although Brazilian sales to China are mainly commodities, while the Asian country exports higher value-added products to Brazil. The Chinese want to reduce this distance and presented this demand to Brazil, which had been negotiated in stages in recent months.

The creation of the clearing house is similar to the mechanism adopted by the Chinese in Chile and Argentina, both countries that make up the Belt and Road Initiative (BRI), a Beijing infrastructure loan and financing program that prioritizes ensure “unhindered business” between China and its partners.

Brazil’s entry into the BRI divides opinions within the Brazilian government, as it would be more of a political pleaser for China than an opportunity for business expansion. Brazil is already the largest destination for Chinese investments in the world today. The United States is concerned about Brazil’s entry into the BRI, as both China and Russia are trying to implement business mechanisms that exclude the dollar as a form of payment, reducing American economic and political influence in the world and circumventing possible sanctions on Washington.

The Brazil-China business forum, which was attended by more than 500 businesspeople, took place in Chaoyang, an upscale neighborhood in the Chinese capital, and was originally led by Brazilian president Luiz Inácio Lula da Silva. However, he canceled his trip to China at the last minute, after being diagnosed with pneumonia caused by bacteria and the influenza A virus.

Although the creation of the clearing house was received with little excitement by Brazilian businesspeople, this initiative could be beneficial for commercial relations between Brazil and China. By using the yuan, Brazilian businesspeople will be able to reduce transaction costs and increase competitiveness in the Chinese market. In the long term, this could lead to an increase in the export of high-value-added Brazilian products to China. However, Brazil needs to carefully evaluate entry into the BRI to ensure that it brings economic and not just political benefits.