Cross-Currency Hedge of the Real: Yuan, Rand, Rupee, Ruble

Trade and finance outside the dollar is a recurring theme of BRICS summits, and Brazil’s government has argued for it repeatedly: in April 2023, at the New Development Bank in Shanghai, President Lula asked who had decided the dollar would be the world’s currency, weeks after Brazil and China agreed to settle trade in their own currencies (Hong Kong Free Press/AFP). For a structure that funds Brazilian assets with yuan, rand or rupees, or repays in them, the currency risk does not go away; it changes partner. The question this final article in the series answers is what a cross-currency hedge of the real into those currencies costs, and why the answer still runs through the dollar.

On 2 October 2026, B3’s curves priced a three-month hedge of the real at 6.66% a year into the dollar, 10.05% into the yuan and 4.04% into the rand. Into the ruble the hedge paid the holder of reais 3.00% a year. For the rupee there was no number at all. These are prices at the close on 2 October 2026. On 5 October, after the first round of Brazil’s presidential election, the real strengthened about 4.6% against the dollar in a single day (PTAX 5.2238 → 4.9859), and the curves moved with it; the two-leg arithmetic did not.

A hedge through the dollar

There is almost no direct market for hedging the real against other emerging currencies. Dealers build the hedge from two legs, each against the dollar: reais into dollars, then dollars into the second currency.

Three consequences follow.

• The spread is paid twice, once on each leg, and so is any basis between onshore and offshore rates. On a quarterly roll, a 0.2-point half-spread per leg adds about 0.4 points a year to a yuan hedge, against 0.2 for the dollar.
• The dollar cancels out of the price. What remains is the gap between Brazilian rates and the second currency’s rates. The lower the other currency’s interest rates, the more the holder of reais pays: yuan rates near 1.5% make the hedge into yuan dearer than the hedge into dollars.
• Where the second leg cannot be bought, there is no price. The formula produces a number for any currency with a forward curve. Whether anyone can trade at that number is a separate question, as the ruble shows.

What it costs, currency by currency

The cost of the first leg is the one taken apart earlier in this series. Combined with B3’s curves for the second legs, three-month hedges of the real have cost:

Four readings stand out.

• The yuan has cost more than the dollar every month since November 2022. On 2 October the gap was 3.4 points, and the hedge into yuan was dearer than in 81% of months since 2016. Chinese rates are lower than dollar rates, so the holder of reais gives up more to lock the yuan.
• The rand is the cheapest hedge on offer, with a median of 2.3%. From August 2017 to June 2021 it was negative every single month: South African rates were above Brazil’s, and the holder of reais was paid to hedge.
• The ruble hedge has been negative in 93 of 95 months, because Russian rates sit above Brazil’s. In 2022 the curve reached −44%, which was a broken market under sanctions, not a price Western counterparties could trade.
• The rupee has no price here at all. B3 publishes no rupee curve, and the rupee’s own offshore market is non-deliverable: at about $71 billion a day it is the largest NDF market in the world (BIS Triennial Survey 2025). A real–rupee hedge is two non-deliverable legs, each settled in dollars.

Who pays and who earns

The sign of the hedge depends on which side has the higher interest rate, and that decides who pays.

The last row matters most. A ruble investor who hedges a 20% real loan earns about 24% in rubles because ruble rates are high, not because Brazil is generous. Cross-currency arbitrage exists only where the offshore curve and a country’s onshore rates come apart, and that gap persists where access or bank balance sheets limit who can trade both markets at once.

Rate gap and currency move are different numbers

The cost of a hedge is set by interest rates on the day it is bought, not by what the currency does next. The record of the real against each currency shows how loosely the two are linked. Here is the change in the value of one real, to 25 September 2026:

Over twenty years the real lost 12% against the rand, about 0.6% a year, while a hedge into the rand cost a median 2.3% a year from 2013. A year ago the hedge into dollars cost 8.65% a year; the real then gained 2.9% against the dollar, and the hedger paid for insurance that was not needed. Within a single year the real moved up to 9.1% against the dollar and 17.6% against the rupee before settling where it did, so a hedge is protection against the path, not only the end point. The hedge-or-carry backtest shows what that path cost a dollar investor over twenty years.

Calculator: two legs through the dollar

Pick a currency to load B3’s two legs for 2 October 2026, then move the legs, the spread or the yield you want to convert.

The yuan preset shows the main point in one view: the hedge costs 10% because Chinese rates are low, and the spread is paid twice. Switch to the ruble and the sign flips. The holder of reais is paid, though in this case the number is one that most Western counterparties cannot trade.

Where cross-currency hedges get misread

Which way the quote runs

A discount of the real in yuan and a premium of the yuan in reais are different numbers. If the real trades 10.04% cheaper in yuan for a twelve-month delivery (as it did on the July 2026 curves), the yuan costs more than 10.04% in reais:

Here 1 / (1 − 0.1004) − 1 = 11.16%, not 10.04%: more than a point of difference, and the gap grows with the size of the number. The cost of a hedge should always be computed as the premium of the currency you will buy, measured in the currency you hold.

Onshore and offshore yuan

The yuan trades as CNY inside China and as CNH offshore. On 2 October the two hedges were 10.05% and 9.94%. That difference was small, but it is not always, and a structure has to know which one it can access.

A number is not a market

For the ruble the formula still returns a figure, but a Western counterparty cannot take the second leg, so the figure is theory until a counterparty and a compliance review say otherwise. The currencies of newer BRICS members, such as the Iranian rial or the Ethiopian birr, have no B3 curve at all, and the obstacles differ: the rial is under sanctions, while the birr is not freely convertible.

What this means for funding without dollars

Cheap foreign money is the usual case for funding Brazilian assets outside the dollar, and the hedge decides how cheap it really is. On 2 October, three-month money hedged into reais cost about 10.7% when borrowed in dollars at US money-market rates, about 11.1% from rand and about 11.7% from yuan. The borrowing rates are the latest OECD monthly three-month rates (August for the dollar and the rand, July for the yuan) combined with B3’s curves for 2 October, so the figures are approximate. All three sit within about a point of each other and below the 13.0% DI rate (13.5% on B3’s 252-business-day basis)—that last gap is the onshore dollar premium from the hedge-cost article. Yuan money at 1.5% is cheap only as long as it stays unhedged.

The exception is a borrower who already earns the second currency. A Brazilian exporter selling to China and paid in yuan can borrow in yuan and repay from yuan revenue, with no hedge at all. That is where funding without dollars genuinely changes the economics, and it is the structure behind the yuan funding lever in our RWA financing framework. For everyone else, the currency of the lender matters less than the currency of the revenue, and the hedge, through the dollar or not, prices the difference. Which instrument carries each leg decides how much of that price is paid in cash along the way.

c_bu = 0.0666                       # reais into dollars, 3 months, B3, 2 Oct 2026
c_bx_b3 = {"CNY": 0.1005, "ZAR": 0.0404, "RUB": -0.0300}

for ccy, c_bx in c_bx_b3.items():
    c_xu = (1 + c_bu) / (1 + c_bx) - 1          # implied second leg: X into dollars
    print(f"{ccy}: second leg {c_xu:+.2%}, cross hedge {c_bx:+.2%}")
# CNY: second leg -3.08% (yuan rates below dollar rates)
# ZAR: second leg +2.52%
# RUB: second leg +9.96% (ruble rates far above)

def with_spreads(c_bu, c_xu, half_spread):
    """Cost to a holder of reais who pays the half-spread on both legs."""
    return (1 + c_bu + half_spread) / (1 + c_xu - half_spread) - 1

print(f"{with_spreads(0.0666, -0.0308, 0.002):.2%}")    # 10.48% for the yuan
print(f"{1 / (1 - 0.1004) - 1:.2%}")                     # 11.16%: quote direction

The takeaway

Hedging the real into a BRICS currency is two dollar hedges glued together. The dollar drops out of the price, which is set by the gap between Brazilian rates and the other currency’s rates. On 2 October 2026 that gap made the yuan the most expensive hedge at 10%, the rand the cheapest at 4%, and the ruble a hedge that pays the holder of reais, on paper. The spread is paid on both legs, the direction of the quote can shift a number by more than a point, and some numbers have no market behind them. Funding without the dollar changes the economics only where the borrower already earns the other currency. Everywhere else the hedge brings the cost of money back to within about a point of where it started. That is the conclusion running through this five-part series: a currency hedge is priced by interest rates, so it cannot turn one interest rate into another.