Editor's note: Shahid Hussain is the founder and CEO of UAE-based company Green Proposition. The article reflects the author's opinions, and not necessarily the views of CGTN.

With Brazilian President Luiz Inacio Lula da Silva paying a four-day state visit to China this week, the two emerging countries' recent decision to trade in their own currencies, bypassing the U.S. dollar, is another smart move that will benefit both and have positive ripple effects throughout Latin America. This is especially true when we consider the context of the BRICS.

The BRICS is an important economic bloc that represents roughly 40 percent of the world's population and 25 percent of global GDP. It is therefore natural for countries like China and Brazil, which are both BRICS members, to deepen their economic ties and explore opportunities for greater economic integration. By trading in local currencies, they are taking an important step towards achieving this goal.

Moreover, the BRICS grouping has already taken steps to promote greater use of local currencies in cross-border transactions. In 2019, the BRICS New Development Bank issued its first bonds denominated in Chinese yuan, signaling a commitment to reducing dependence on the U.S. dollar and promoting greater use of local currencies in international finance.

Brazil has been struggling with a high debt-to-GDP ratio for many years, which has limited the country's ability to invest in infrastructure and other areas critical to economic growth. As of 2021, Brazil's debt-to-GDP ratio was around 80.27 percent, a level that many economists consider unsustainable in the long term. By trading in local currencies with China, Brazil can potentially reduce its reliance on the U.S. dollar and mitigate some of the risks associated with its high debt-to-GDP ratio. This could help to stabilize Brazil's economy and put the country on a more sustainable path toward long-term growth and development.

The bilateral trade between the two countries exceeded $150 billion in 2022. Chinese entities are already contributing to digital and physical infrastructures development of Brazil. Since 2007, Chinese companies have attracted 25 projects in electricity and IT sectors, which are critical for Brazil's Digital Transformation Strategy. The relationship is growing beyond trade in commodities and authorities are working together in the field of science, technology and innovation to further strengthen the relationship. 

One good case study is that the use of local currencies in the China-Chile trade relationship led to a significant reduction in transaction costs and increased trade volume when both countries signed the China-Chile Free Trade Agreement (FTA), which went into effect in 2006.

The Chinese yuan has already surpassed the euro to become the second largest international reserve currency of Brazil and the benefits of trading in local currencies are numerous. By avoiding the U.S. dollar as an intermediary, China and Brazil will be able to reduce transaction costs and mitigate exchange rate risks, which should lead to more efficient trade and investment flows between the two countries. This will also facilitate greater economic integration and further deepen ties between the two nations.

In addition to these economic benefits, this deal will also serve to strengthen political ties between China and Brazil. By reducing their dependence on the U.S. dollar and promoting greater use of local currencies, China and Brazil are signaling to the world that they are looking to assert their economic independence and play a greater role on the global stage. This move will also help to reduce Western influence on the international financial system and promote greater competition among currencies.

Looking ahead, the future of Brazil-China relationship is bright. As two of the world's largest economies, China and Brazil have much to gain from deepening their economic and political ties. By trading in local currencies, they are taking an important step toward greater economic integration and reducing their dependence.

In addition, both countries share a commitment to promoting sustainable development as Brazil and China have unique domestic advantages to tackle climate change with the former literally dubbed the "Lungs of the Earth" because of the Amazon rainforest and the latter's second to none green energy technologies. Hopefully both countries will work together for sustainable development, which should serve as a basis for further cooperation in the years ahead.

In conclusion, this deal to trade in local currencies is good news for China and Brazil, as well as for other Latin American countries. By reducing transaction costs, promoting economic integration, and deepening political ties, this move will help promote greater regional development and reduce external influence on the international financial system, resulting in inclusive global growth.

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