Brazil and Argentina have launched a new payment system in their bilateral trade, doing away with the US dollar as a medium of exchange.

The two Latin American nations started the Payment System on Local Currency (SML) on Monday following a last month agreement inked by their presidents to use local currencies in a bid to end transaction in dollars.

On Thursday, Argentine Central Bank President Martin Redrado and his Brazilian counterpart Henrique de Campos Meirelles signed the enforcement of the agreement for the SML, under which exports and imports between the two countries will take place with the Brazilian real (BRL) and the Argentine peso (ARS).

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The new monetary system mainly favors small and medium industries in both countries because it will save them bank charges when averting their local currencies to dollars.

According to the Central Bank of Argentina, the trade between the two major South American economies stands at about 25 billion US dollars per year.

Although the SML seeks to gradually eliminate the dollar from the bilateral trade, the currency will continue its presence in transactions between Brazil and Argentina, as their central banks will set the exchange rate for the real and the peso with respect to the dollar.

Brazilian authorities said that the SML deepens the integration between Brazil and Argentina and hope it will serve as an example to be adopted by other countries of the Mercosur, like Paraguay and Uruguay.