The Internationalization of Renminbi: The View of Brazilian Companies Regarding the Internationalization Process of Chinese Currency

Abstract

China is the second largest global economy and Brazil’s largest trade partner. Ever since the financial crisis of 2008, there has been deliberate intention on the part of the Chinese government to internationalize its currency. This study aims to investigate the perception of Brazilian companies regarding the internationalization of renminbi and its impacts on trade with China. We performed a qualitative research through a theoretical sampling, selecting nine major companies presenting relevant trade with China. The research shows that, by adopting renminbi, companies can reap economic benefits such as increase in trade and reduction in transaction costs, for instance. Some barriers have also been identified, coinciding with the literature review, such as lack of liquidity, reliability and independence of the Chinese monetary authority and other issues related to cultural differences. The companies interviewed support certain initiatives, such as entering into swap agreement and the adoption, by the Brazilian Central Bank, of renminbi in its international reserves. Finally, this study proposes financial cooperation agreements with China, aiming at reducing barriers on employing the Chinese currency and increasing business deals between both countries.

Keywords:

• Internationalization of Renminbi
• international financial markets
• government policy and regulation

JEL CLASSIFICATION:

• F33
• G28

Data availability statement

Data available on request from the authors. The data that support the findings of this study are available from the corresponding author, upon reasonable request.

Notes

1 Brazil's exports in 2019 were mainly commodities and animal protein such as soybeans (32%), crude oil (24%), iron ore (21%), beef and chicken meat (4.2%).

2 Imports from China in 2019 are basically electronic components (18%), machinery and electrical appliances, including parts and accessories (7.8%), oil exploration platforms (6.0%), products for the manufacturing industry (6.0%), chemical products (5.0%) and parts and accessories for motor vehicles (1.8%).

3 The Chinese currency is denominated renminbi (RMB or CNY), a term that means “the people's money”. Yuan is the unit of account for quoting prices.

4 See Fung et al. (2013) and Jing (2007) for a review of the internationalization of the Renminbi.

5 Dollar quote on 20/03, /2020 equivalent to RMB 7.1052/US$1.00, obtained at the PBOC website. This is the exchange rate used throughout the study to convert RMB into US$.

6 The Brazilian parliament approved the authorization for Brazil to be a member of the AIIB in August, 05^th, 2020, according to the website https://www12.senado.leg.br/noticias/materias,/2020/08/05/aprovada-entrada-do-brasil-no-banco-asiatico-de-investimento-em-infraestrutura.

7 Information about the companies and interviews are available in Appendix 1, including the value of exports to China and the share of each company in Brazil’s exports to China in 2019.

8 The companies’ and interviewees’ secrecy and confidentiality were ensured by signing an Informed Consent Form.

9 The classification of the elements according to certain criteria is called categorization.