Wednesday, October 08, 2008

Eliminate The US Dollar

Brazil and Argentina, two biggest economies in South America, Monday launched a new payment system of bilateral transaction with their local currencies, aimed at eliminating the U.S. dollar as an intermedium.

The new system was agreed by presidents of the two countries early last month to end decades of mandated trade in dollars.

Argentine Central Bank President Martin Redrado and Brazilian Central Bank President Henrique de Campos Meirelles signed the enforcement of the agreement, the Payment System on Local Currency (SML), last Thursday.

Under the system, exporters and importers from both countries will make their exchanges with Brazilian reals and Argentine pesos.

The trade on reals and pesos will mainly benefit the small and medium companies from both countries because it will avoid the payment of bank charges when averting to dollars.

According to the Central Bank of Argentina, the trade between Brazil and Argentina is about 25 billion U.S. dollars per year.

Brazilian authorities said that with the SML exporters will receive exactly the negotiated value on their currency.

Although this new system seeks to gradually eliminate the dollar from the bilateral trade, the dollar will continue at the exchange.

The central banks of Brazil and Argentina will set the exchange rate between the reals and pesos with respect to the dollar.

Brazilian authorities said that the SML deepens the integration between Brazil and Argentina.

If the mechanism works out without incidents between Brazil and Argentina, it will be adopted by other countries of the Mercosur, like Paraguay and Uruguay, Brazilian authorities said.

Brazilian and Argentine authorities said that the partial elimination of the dollar in their bilateral trade does not have to do with the U.S. financial crisis since the SML was arranged a long time ago.

Economist Mariano Lamothe from the economic website said that despite the financial crisis in the United States, the dollar is more stable than the peso or real.

The new payment system has more political importance than technical importance because it will strengthen ties between Argentina and Brazil, the biggest economies of the Mercosur, Lamothe said.

Source - Xinhua


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