Lula: "Let's Establish a Reserve Currency to Replace the Dollar"... China Supports 'De-Dollarization' Efforts

Brazilian President Luiz In?cio Lula da Silva (center in the photo) visited Huawei's R&D center in Pudong District, Shanghai, on the 13th (local time) and shook hands with Liang Hua, Chairman of Huawei's Board (right in the photo). [Image source=AFP Yonhap News]

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Brazilian President Luiz In?cio Lula da Silva, on a state visit to China for the first time in 14 years, called for establishing a reserve currency to replace the dollar, which dominates global trade. Brazil has recently supported China's efforts to challenge the US dollar hegemony, including initiating yuan-denominated settlements in trade with China for the first time.

On the second day of his visit, the 13th, President Lula attended a lecture at the New Development Bank (NDB) in Shanghai, China, where he questioned, "Why can't BRICS banks use currencies other than the dollar in trade with countries like China?" He added, "Who decided that only the dollar should be used in trade after the gold standard ended?"

The NDB is a multilateral development bank established in 2015 by the five BRICS countries (Brazil, Russia, India, China, and South Africa) to counter the Western-led international financial system dominated by the US and others. The NDB headquarters is located in Shanghai. President Lula recently visited the NDB to attend the inauguration of his successor, former Brazilian President Dilma Rousseff, as the third NDB president. Given that Lula chose the NDB as his first agenda item during his state visit to China after 14 years, analysts interpret this move as a signal of caution against US dollar dominance.

Fernando Haddad, Brazil's Minister of Finance, who accompanied President Lula on the visit, also indicated efforts to check the US-led financial order. He told reporters, "The goal is to expand payment structures that allow trade activities without relying on a third currency."

On the 12th, coinciding with President Lula's visit, the two countries conducted their first cross-border yuan settlement operation. This enables Brazilian companies to use the Cross-Border Interbank Payment System (CIPS) instead of the US dollar-based Society for Worldwide Interbank Financial Telecommunication (SWIFT) network in trade with China.

Brazil's recent alignment with China's challenge to the dollar hegemony stems from its significant economic dependence on China. According to the Brazilian Trade and Investment Promotion Agency, China has been Brazil's largest trading partner since 2009. Last year, bilateral trade reached a record high of $150.4 billion (195.4889 trillion KRW). In 2021, China was also the largest Asian investor in Brazilian infrastructure projects.

Emerging countries in the Middle East and Africa are also seeking to reduce their dollar dependence for similar reasons, and China is seizing this opportunity. In March, China introduced yuan payments for trade with Saudi Arabia, its largest crude oil supplier. This move is seen as an attempt to break the implicit agreement of the "petrodollar" system, which requires oil payments to be made in US dollars.

However, it seems unlikely that emerging countries, including Brazil, will be able to eliminate the dollar from trade markets in the near term. The prices of raw materials they export are benchmarked in dollars on the global market. Major foreign media reported, "Most Brazilian miners are encouraged to price their mineral exports in dollars," and warned that "any attempt by Brazil to reject the US currency will hit a wall."

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