BRASILIA, March 31 (Reuters) – The Chinese yuan has passed the euro to become the second most important currency in Brazilian foreign reserves, according to a central bank report on Friday, reflecting the deepening economic ties with Brazil’s biggest trading partner.

Until 2018, the yuan was absent from Brazil’s foreign reserves and now accounts for 5.37% of Brazilian central bank holdings at the end of 2022, surpassing the euro’s 4.74% share.

The U.S. dollar continues to dominate, comprising 80.42% of Brazil’s total foreign reserves in 2022.

Earlier this year, China and Brazil moved to reduce the dominance of the dollar by signing an agreement on setting up yuan clearing house arrangements that would facilitate bilateral trade and investment.

China is the main buyer of iron ore, soy beans, meat, sugar and pulp exports from Brazil.

In its annual report on reserves, the Brazilian central bank said there were no significant variations in the composition of the portfolio compared to the previous year, when it had sought to diversify its strategic allocations, including increased exposure to yuan and gold.

Brazil’s total foreign reserves fell to $324.70 billion in 2022 due to a 7.45% drop in portfolio returns, caused by rising interest rates in the United States and the appreciation of the U.S. dollar against other currencies. (Reporting by Marcela Ayres; Editing by Sandra Maler)