Argentina and Brazil are reportedly bracing to soon announce a common currency. In what would be the world’s second-largest currency bloc, the two nations will announce it at a Buenos Aires summit. In focus reportedly will be the manner in which the new “sur” (or south) currency could benefit regional trade and decrease the U.S. dollar reliance.
Sharing the details, Whole Mars Blog tweeted:
Brazil and Argentina to start preparations for a common currencyhttps://t.co/m1HIXWRrWA— Whole Mars Catalog (@WholeMarsBlog) January 22, 2023
The currency shift would be gradual for the two South American nations. Initially, the newly proposed “sur’ currency would operate alongside the Brazilian real and Argentine peso.
Sergio Massa, economy minister, Argentina, says,
There will be . . . a decision to start studying the parameters needed for a common currency, which includes everything from fiscal issues to the size of the economy and the role of central banks.
The project would initially be a bilateral one, wherein, the other Latin American nations would be invited at a later stage.
Massa says,It would be a study of mechanisms for trade integration. I don’t want to create any false expectations . . . it’s the first step on a long road which Latin America must travel. It is Argentina and Brazil inviting the rest of the region.
A currency union entirely encompassing Latin America accounts for an estimated 5% of the global GDP. Trade between Argentina and Brazil peaked at 21% or $26.4 billion in 2022. Argentina and Brazil are powering the Mercosur regional trade bloc (including Paraguay and Uruguay).
Brazilian president Luiz Inácio Lula da Silva will attend a 33-nation Community of Latin American and Caribbean States (CELAC) summit in Argentina on Tuesday. The summit shall assemble the leftwing leaders of these nations, paving the way for the new common currency.
Alfredo Serrano, a Spanish economist, says the summit aims to strengthen the regional value chains to tap on regional profit avenues. In doing so, also progressing a currency union.
Serrano says, the monetary and foreign exchange mechanisms are crucial. There are possibilities today in Latin America, given its strong economies, to find instruments which substitute dependence on the dollar. That will be a very important step forward.
But the leftist presidents of the two Latin American nations have a complex global economic climate awaiting.
Manuel Canelas, a political scientist and former Bolivian government minister, says,
Because of this, all the steps towards integration will certainly be more cautious . . . and will have to be focused directly on delivering results and showing why they are useful.
Challenges posed by domestic politics having coalition governments and a low citizen preference for regional integration is worrying.