Local currency: More exchanges with Argentina, Paraguay and Uruguay – 04/20/2023 – Market

The Central Bank informed this Thursday (20) that the CMN (National Monetary Council) approved a resolution that simplifies and standardizes procedures for the SML (Local Currency Payment System), which brings together Brazil, Argentina, Paraguay and Uruguay.

This system allows transactions between companies and people from these countries to take place in their respective local currencies. The exchange is carried out by the system, through transfers of resources between the central banks of the countries.

Among the main changes are the simplification of SML operating procedures carried out by authorized financial institutions and the standardization of control procedures for exchange operations and operations processed through the SML.

In addition, the CMN decided to expand the list of institutions that can operate in the SML, so that it is a product to be offered to customers of institutions authorized to operate exchange in Brazil.

“The updates have the potential to promote competition, reduce the cost to the end user, improve security, reduce payment times, integrate the SML with innovations in the financial system and contribute to the BC’s supervisory efficiency”, said the autarchy, in press release.

According to the deputy head of the BC’s Department of International Affairs, Marcelo Aragão, one of the intentions is to increase competition in exchange operations between the countries involved. In practice, companies from different countries that trade may opt for the conventional exchange rate or the SML.

“Let’s assume that an exporter in Brazil sells shoes and negotiates ten pairs of shoes at 200 reais each. He will agree on this price and will receive the 2 million reais upon payment. “, exemplified Aragon.

Exchange settlement is carried out between central banks, through the transfer of reserve funds between institutions. In this case, transfers are made in dollars.

According to the BC, since 2008 the SML has moved around 50 billion reais.

Aragão informed that, currently, 5% of the annual trade relations between Brazil and Argentina are carried out via SML. In the case of Uruguay, it is 3% and in the case of Paraguay, 5%.

The improvements in the SML by the Central Bank come at a time when the government has been questioning the use of the dollar in international transactions.

In January, during a trip to Argentina, President Luiz Inácio Lula da Silva defended that trade with the neighboring country be done “always in the currency of our countries so that it does not need to depend on the dollar”.

On a recent trip to China, Lula also defended the use of a common currency for transactions with Brics countries, to the detriment of the dollar.

Questioned whether the improvement of the SML at this moment responds to a demand by the Lula government, Aragão stated that there was a “happy coincidence”.

“There is a convergence, a happy coincidence”, he pointed out, denying that any request from the Lula government had reached his team, in BC, for the improvement of the SML to occur at this moment.