Brazil and Argentina on Friday signed an agreement to develop and implement a bilateral payment system that will use the two countries' own currencies instead of U.S. dollars.

The project, which will be launched in six months, aims at reducing costs in commercial transactions, as there will not be the need to close deals in U.S. dollars, Brazilian Central Bank President Henrique Meirelles said in Brasilia.

Meirelles was attending a meeting of central bank presidents and ministers of finance of South American Common Market (Mercosur) member countries which commenced on Wednesday.

All sales and purchasing operations will be carried out in Brazilian and Argentine currencies, real and peso respectively, straightaway, Meirelles said.

Under the new system, Meirelles explained, there will be a unified exchange rate between real and peso, the so-called reference rate, which will be applied by Brazilian and Argentine central banks at the end of each day.

He did not estimate how much will be saved following the implementation of the system, but stressed the swap system would be favorable for small-volume trades in particular.

The new system, which will not replace the current one, will be effective by mid-2007. Importers and exporters will have the option of using either system.

The new direct currency conversion system was announced by Brazilian Finance Minister Guido Mantega and his Argentine counterpart Felicia Miceli, both of whom were attending the Mercosur ministerial meeting.

The central bank presidents and finance ministers decided to set up a fund to promote structural development in the regional bloc.

Mercosur is comprised of Brazil, Argentina, Uruguay, Paraguay and Venezuela, which take turns every six months to assume the bloc's presidency, currently held by Brazil.

Mantega said that the initial budget of the fund is 70 million dollars, to which Brazil has contributed with 35 million dollars.

He said that the fund will finance social projects such as the eradication of the foot-and-mouth disease in Mercosur.

Source: Xinhua