China and Brazil are said to have reached an agreement to stop trading with the U.S. dollar and use their own currencies instead, the Brazilian government revealed on Wednesday. China, the prime opponent to US economic power, and Brazil, which currently has the largest economy in Latin America, will be able to carry out their immense economic and financial dealings without needing to use the dollar as a medium of exchange. As part of the arrangement, the two countries will be able to exchange their currencies directly.
“The expectation is that this will reduce costs… promote even greater bilateral trade and facilitate investment,” the Brazilian Trade and Investment Promotion Agency said in a statement.
In January, representatives from the two nations arrived at a provisional agreement to get rid of the U.S. dollar, which was revealed after a high-level meeting between China and Brazil in Beijing. President Luiz da Silva, who took office in January, has made an effort to tighten the bonds between the two countries after the past few years of tumultuous relations under Jair Bolsonaro’s leadership, who had been using negative language about China during his election campaign and time in office.
Last year, an unprecedented $150.5 billion in two-way trade occurred between China and Brazil, and China is also engaged in similar activities with other nations, such as Russia and Pakistan. With a new contract that eliminates the dollar in trading, questions obviously still remain.
People particularly in the digital payments and blockchain fields will be observing how countries are transacting and how quickly currencies settle. Moreover, they will be examining the technology employed to expedite these said transactions. If the US does not want to be left behind, it should begin to seriously consider its economic, political and FinTech procedures.
The economic relationship between China and the United States has a long and complicated history, dating back to the 1970s. The relationship began to take shape when the US decided to open up trade with China in the 1970s. The move was strategic, as it aimed to counterbalance the Soviet Union’s influence in the region. The US saw China as a potential ally, but it also recognized the economic potential of the country’s large population and natural resources.
Over the years, the bond between the two countries deepened, with China becoming the largest exporter of goods to the US. However, the relationship was not without its challenges. One of the most significant challenges was the issue of intellectual property theft. China has been accused of stealing US technology, which has led to a strain in the relationship.