Illustration: Tang Tengfei/GT
Brazil’s plan to sell its first sovereign debt in the Chinese market is an important step for Brazil in expanding its financing channels and strengthening financial cooperation with China, as well as a clear indication of the growing appeal of the yuan as an international currency.
Brazil is planning the so-called panda bond – yuan-denominated debt issued by a foreign borrower – this year, Brazilian Deputy Minister of Finance Dario Durigan told the Financial Times in an interview published on Monday.
For Brazil, a major economy in South America, the plan has significant implications. The country is at a pivotal moment of economic transformation, with infrastructure construction and industrial upgrading in urgent need of substantial financial support. By issuing panda bonds, Brazil can broaden its financing channels and secure lower interest rates.
Currently, the yield on 10-year Chinese government bonds stands at about 1.68 percent, significantly lower than the approximately 4.45-percent yield on 10-year US Treasury bonds. In 2024, the CFETS RMB Index, a trade-weighted index introduced by the China Foreign Exchange Trade System, rose 3.99 percent from 2023, showing relative stability compared with a range of currencies. This makes panda bonds an attractive option for the South American nation, as they can significantly reduce financing costs and minimize the risks associated with currency volatility.
Moreover, the move is a clear indication of the expanding international ecosystem of the yuan. In recent years, the use of the yuan in international economic and trade cooperation has been steadily expanding. Take China-Brazil cooperation as an example. In 2023, China and Brazil signed a memorandum of understanding on cooperation to promote local currency trade, according to the Xinhua News Agency.
In May, the central banks of China and Brazil signed a memorandum of understanding on financial strategic cooperation and renewed their bilateral local currency swap agreement. Now, with Brazil planning to issue panda bonds, their financial cooperation is clearly advancing to the higher-level field of sovereign financing.
The panda bond market has been growing rapidly in recent years and has become an important driving force for yuan internationalization. As reported by CCTV News, the issuers of panda bonds now include various types of institutions, including international development institutions, foreign governments, overseas financial institutions, and non-financial enterprises. In 2024, the annual issuance of panda bonds in the inter-bank market was approximately 185.8 billion yuan ($25.87 billion), with a market size of nearly 300 billion yuan. In the first four months of this year, the cumulative issuance of panda bonds reached 62.2 billion yuan, maintaining rapid growth momentum.
Brazil’s embrace of yuan financing could have a notable demonstration effect on the region. For a long time, Latin American countries have been highly dependent on the US dollar in international trade and financing. Brazil’s move could serve as a model for neighboring countries, potentially accelerating yuan adoption throughout Latin America.
The trend is already emerging. In 2024, the share of the yuan in cross-border settlements in Latin America is estimated to have reached 14 percent, nearly five times higher than in 2019. Countries like Brazil and Argentina have taken the lead in yuan settlements for the trade of commodities such as iron ore and lithium, setting the stage for broader yuan usage in the region, the Economic Daily reported.
The growing internationalization of the yuan is, to a large extent, a response to the increasing demand from emerging economies for a more diversified international monetary system. According to data from the People’s Bank of China, China’s central bank, as of the end of 2024, the yuan was the world’s fourth-largest currency for payments and the third-largest currency for trade financing.
As more countries, like Brazil, integrate into the yuan ecosystem through panda bond issuance, currency swaps, and local currency settlements, a more diversified international financial order is gradually taking shape. The yuan’s increasing role on the international stage, driven by market forces, is a positive sign for a more diversified global financial landscape.
