China challenges greenbacks role as international currency

China and Brazil are working on a currency arrangement to allow exporters and importers to settle deals in their local currencies, bypassing the U.S. dollar, the countries' central banks said last Sunday.

China's Central Bank Governor Zhou Xiaochuan and Brazil's Central Bank President Henrique Meirelles discussed the bilateral deal in a meeting at the Bank for International Settlement (BIS) on Saturday.

China -- the world's top holder of foreign exchange reserves -- renewed its call last Friday for the creation of a super-sovereign reserve currency to reduce the dollar's global domination, which it said had worsened the financial crisis.

Brazil is not afraid of slowly diversifying out of U.S. dollars in its investments and international trade, as long as the process is safe and not an "adventure," Foreign Minister Celso Amorim said last Friday.

However, since the free convertibility of RMB hasn't been achieved and Brazil's real fluctuates with the U.S. dollars, there is still a long way to go for Brazil and China to bypass greenbacks in the bilateral deals.

"The two sides agreed to start researches on using the home currency to replace dollars for bilateral deal," Meirelles told reporters in Brazil.

BRIC nations (Brazil, Russia, India and China) had first called for a more diversified global monetary system and less dependency on the U.S. dollar in its first summit in June.