China to extend loans in yuan to BRIC countries

The move is no doubt intended to help make the Chinese currency more of a force in international monetary transactions. China is also trying to diversify from its huge holdings of U.S. currency and treasury bonds.

The Chinese Development Bank wants a memorandum of understanding with BRIC partners to increase yuan-denominated loans according to the Financial Times sources. China hopes to increase trade volume with BRIC nations and use currencies in trading other than the U.S. dollar since the agreement would also foster the use of national currencies of the BRIC countries.

Brazil and South Africa have said they expect a deal to be signed by the end of March at a meeting in India. The Brazilian development bank BNDES in a statement said:"We will discuss the creation of structures and mechanisms for lending in local currencies in order to maximize economic and financial transactions between the countries that are members of the accord,"

China still has 54 per cent of its foreign reserves in U.S. dollars. The Chinese believe that the dollar will weaken for some time and hence China will not profit from its U.S. dollar holdings. Of late China has even been buying Australian and Canadian dollars both currencies being strong at present. For more see this article.