By Marcela Ayres

BRASILIA, Reuters – Brazil’s central bank has more than quadrupled foreign reserves over the past year. Policymakers released a report on Thursday detailing how it reduced its holdings in U.S. dollar and euro and created Brazilian currency reserves from its largest trade partner.

China’s currency was not included in the foreign reserves of Latin America’s largest economy until 2018. It rose to 4.99% at the close of the last year and 1.21% by the close of 2020.

The third largest portion of the central bank’s reserve reserves was held by this currency, just behind the euro at 5.04%, down from 7.85% in 2020. From 86.03% last year, the dollar reserves dropped to 80.34%.

This shift demonstrates China’s increasing economic importance to Brazil. China represents 28% international trade. That is more than twice as much as the United States. World Bank data show that China has been their second largest trading partner.

Brazil has also been increasing its exposure to currencies other than the US dollar. This includes the Canadian dollar, British pound and Australian dollar.

The central bank said in its annual report about foreign reserves that they sought more diversification in currency allocations in 2021. However, this was not without regard to the countercyclical character of the portfolio.

To $362.2 billion, total reserves grew by $6.58 trillion last year. The portfolio’s worst performance since 2015 was a 0.62% decline in returns. This is mainly due the strong dollar against all other currencies.