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- Brazil's finance minister proposed the use of yuan guarantees for its trade with Argentina.
- This would help bring security to Brazilian companies as Argentina faces a dollar shortage.
- "It will be a good thing for Brazilian exporters, and it will be great news if Argentina agrees,"
Brazil proposed using Chinese yuan guarantees for exports headed to Argentina, in an effort to reduce trade risks associated with its South American neighbor.
Speaking during the BRICS summit, Finance Minister Fernando Haddad told reporters that the guarantees would be supervised by state-lender Banco do Brazil, which would see the yuan converted back into Brazilian reals to pay exporters.
"It will be a good thing for Brazilian exporters, and it will be great news if Argentina agrees," Haddad said. "They can have a flow of sales with 100% guarantee."
This comes as Argentina faces a shortage of dollars, which is the dominant currency in global trade. Meanwhile, the country's peso is unlikely to provide Brazilian firms with any security, as it has become one of the worst performing currencies in the world.
Through the past month it has fallen 20% against the dollar, and over 90% in the previous five years. This is paired with a triple-digit inflation rate surging through Argentina.
Using yuan guarantees would take away default risk, and the idea has been green lit by the Brazilian Treasury. It has yet to be accepted by Argentina.
Both countries have been moving closer to the yuan as Beijing seeks to internationalize its currency to erode the dollar's dominance in global finance.
Brazil's central bank has been snapping up the Chinese currency. And the yuan surpassed the euro to become the second most dominant currency in Brazil's reserves after the dollar at the end of 2022.
And Argentina said in April it will pay for imports from China in the yuan instead of US dollars. Argentina has also tapped a yuan swap agreement as dollars run short.