What are the advantages of direct currency conversion between Brazil and China?

By Giovana Pignati*

On Wednesday (29), the Central Bank of Brazil (BC) informed that it had signed a memorandum of understanding with the People’s Bank of China (PBC) to enable a financial instrument that allows transactions made in yuan to be converted into real, without the need to use the US dollar as an intermediary.

China and Brazil have been major trade partners since 2009.

Last year alone, the trade flow – including exports and imports – reached a record US$150.5 billion.

The BC affirms that the agreement foresees that the PBC will appoint an institution authorized to operate foreign exchange in Brazil, acting as an “offshore clearing bank in Brazil”.

The institution also reinforces that this Chinese initiative exists in over 25 countries.

BENEFITS OF THE MEASURE FOR BRAZIL

According to the autarchy, the implementation has the potential to bring benefits to the business models that involve the use of the yuan in Brazil, such as:

• increase in local liquidity of yuan;
• maintenance of exchange reserves in hard currency in the country;
• reduction of intermediaries in international payments;
• approximation of the local payment system to the Chinese one.

For Raphael Carnavalli, Marketing and Sales Director of Frete Rápido, the measure brings many advantages in relation to production costs.

“Selling and buying in dollars, for example, must include conversion fees, which makes the product more expensive.”

The executive also points out that, by eliminating the intermediaries, the gains and competition grow.

Thus, Brazilian retailers who import products can enjoy lower prices and greater availability of products to the public.

“You see, both ends win, not just one,” says Carnavalli.

IMPACT ON CHINESE GIANTS

When asked how the agreement would impact the relationship between Chinese e-commerces – such as AliExpress and Shein – with Brazil, the specialist says that these companies will have even more bargaining power.

However, he points out that price is only one of the points for a consumer to purchase.

“Recent research has shown that customers relate to brands directly linked to their values, such as respect for professionals, nature, etc.”

“This is a perfect strategy for Brazilian e-commerce to conquer Brazilian buyers”, he concludes.

*Edited by Claudio Yuge

With information from G1