SAO PAULO -(Dow Jones)- By announcing that it will help finance the International Monetary Fund, Brazil joined Russia and China in taking a shot at the dollar's status as the world's reserve currency, though not as explicitly as they have.

Brazilian Finance Minister Guido Mantega said Wednesday Latin America's largest country will offer $10 billion in financing to the IMF to help support credit availability for emerging market countries.

"This will increase Brazil's international influence," said David Fleischer, a political scientist at the University of Brasilia. "Brazil is contributing directly to the re-engineering of the global finance system."

According to Mantega, Brazil will buy IMF bonds, which are denominated in an IMF currency unit, the Special Drawing Right, the use of which China and Russia have lately begun pushing.

Late last week, China said it is willing to buy as much as $50 billion in IMF bonds. It recently suggested that SDRs replace the greenback in the future as the world's premier reserve currency.

Greater reliance on SDRs could give China and Russia a way to diversify their reserves out of the U.S. dollar, albeit quite indirectly, as SDRs are based on a basket of international currencies, including the dollar.

According to HSBC, at current exchange rates, the dollar represents 41% of the SDR unit, while the euro makes up 37.5%, the yen 12% and the British pound 9.5%.

The timing of Brazil's announcement was interesting, coming on the same day as Russia announced its aim to cut the share of U.S. Treasuries in its foreign reserves. Russia holds the equivalent of $400 billion in reserves, the world's third-largest after China and Japan. Brazil's reserves amount to $204.6 billion.

Brazil itself has made some tentative gestures toward reducing the dollar's influence, including a recent proposal to trade with China in their own respective currencies. The Chinese have not formally responded to the Brazilian overture.

Chinese, Russian and Brazilian officials in recent months have all called for a critical review of the dollar's position as the global reserve currency.

But at a news conference Wednesday, Mantega struck a different note, saying, "In reality, this is an investment Brazil is making with part of its reserves to aid developing countries with scarce credit."

Mantega said the decision on which reserve funds to redirect would be up to the central bank, but added that they would probably use those assets that were producing "the lowest returns." He did not specifically say U.S. Treasuries would be targeted.

Brazil's central bank doesn't routinely publish the composition of its foreign reserves, but U.S. Treasurys clearly make up the largest proportion of them. A year ago, the central bank said roughly 80% of its reserves were in U.S. Treasurys, while 15% was in euro-denominated government bonds and a small portion in gold.

Yet even if Brazil buys the IMF bonds exclusively with U.S. Treasurys, the $10 billion involved is less than 5% of Brazil's foreign exchange reserves and a drop in the bucket of outstanding U.S. Treasurys.

On the other hand, the move is significant for Brazil domestically.

Historically, Brazil's relationship with the IMF has been rather one-sided - as a borrower. However, in recent years, anchored by a pragmatic economic policy based on tight control over inflation and increasing foreign reserves, Brazil has paid down debts and is now emerging as an IMF creditor, raising its international profile among the world's economic heavyweights.

Analysts say that lends itself to political benefits for President Luiz Inacio Lula da Silva's administration.

"It is clear that this will be used in the next presidential race as a way of trumpeting the achievements of the ruling Workers' Party," said the University of Brasilia's Fleischer.

In October of 2010, Brazilians will elect Lula's successor, as his second four-year term ends then and he is not eligible for a third. Elections will include congressional seats and other offices.

-By Rogerio Jelmayer, Dow Jones Newswires; 55-11-2847-4521; rogerio.jelmayer@dowjones.com

(Tom Murphy, Charles Roth and Gerald Jeffris contributed to this report.)

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(END) Dow Jones Newswires

June 10, 2009 16:46 ET (20:46 GMT)

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