China, Brazil Strike Deal To Ditch Dollar For Trade

The de-dollarization trend continues…

Last week, Brazil announced that it had forged a new deal with its largest trading partner, China, to trade in the two countries’ own currencies.

According to a report by the AFP published in Barron’s:

“The deal will enable China, the top rival to US economic hegemony, and Brazil, the biggest economy in Latin America, to conduct their massive trade and financial transactions directly, exchanging yuan for reais and vice versa instead of going through the dollar.”

While this is certainly not the first instance we’ve heard of major countries abandoning the U.S. dollar in bilateral trade, it is certainly one of the biggest. After all, Brazil is the largest economy in Latin America. And, as such, China is Brazil’s largest trading partner. (Last year, the two countries boasted a record $150.5 billion in bilateral trade and financial transactions.)

That these two behemoth economies would want to sidestep the dollar makes total sense, given the massive value of their trading relationship, as doing so improves efficiency and lowers costs by reducing an additional layer of foreign currency exchange risk.

But the deal also delivers another benefit of decreasing both countries’ dependence upon the U.S. dollar.

China’s economy and currency have been the key beneficiaries of America’s economic missteps and geopolitical blunders. Beijing has already brokered other similar currency settlement deals with Russia, Pakistan, and others. So too, the BRICS nations have been mulling the creation of a new common currency for trade settlement.

While the U.S. dollar remains firmly fixed as the world’s reserve currency today, the tides have been slowly but surely turning away from America’s favor as we head into the future.

I’ve been writing about the threat posed by the growing de-dollarization trend for more than 15 years. With each passing year, it seems we are getting closer to the day of reckoning for America’s fading economic crown.

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