China’s semiofficial Global Times commented in a May 13 article that the just-renewed $28 billion currency swap between the People’s Bank of China (PBOC) and Brazil’s Central Bank can serve as a very positive example for other Latin American countries that are dealing with the volatility of the international financial markets, in what is a “challenging financial environment.” The swap is good for five years and can be renewed upon mutual consent. Arrangements such as this, Global Times points out, can help “cushion the impact of financial turmoil when facing balance of payments stress” reflecting a “deepening of financial ties between China and Brazil.”
Also given the significant level of bilateral trade—last year it amounted to $250 billion—there’s a need for a more stable and efficient settlement mechanism, because the “traditional dollar-based system exposes businesses on both sides to the volatility of the dollar exchange rate and incurs additional transaction costs.” A currency swap can be useful in times of financial uncertainty, Global Times adds, particularly during times of dollar liquidity crises, serving as a kind of financial buffer that can also provide an “alternative means to alleviate liquidity pressures.”
