Argentina and Brazil have decided to use their own currencies in bilateral transactions instead of US dollar, Argentine official says.

The new payment system, started in August, is aimed at reducing costs in commercial transactions and would benefit small and medium-sized enterprises, an Argentine Central Bank official said Saturday.

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

Brazilian President Luiz Inacio Lula da Silva reached an agreement to establish a new payment system with his Argentine counterpart Cristina Fernandez de Kirchner during his visit to Argentina in February.

Technical preparations are underway for the new system, which the two countries will adopt in several steps due to the large amount of bilateral trade, according to Xinhua.

Brazil is Argentina's largest trading partner, while Argentina is Brazil's second-biggest trading partner after the United States.

Bilateral trade stood at around 23.6 billion US dollars last year.

RB/RA