One currency in Brazil and Argentina?

Brazil and Argentina want to strengthen their economic cooperation. Part of this are talks about a common South American currency.

But there would still be a long way to go until then.

The two South American countries Argentina and Brazil want to press ahead with talks about a common South American currency. The left-wing Brazilian President Luiz Inacio Lula da Silva and his Argentinian counterpart Alberto Fernandez wrote in a joint article for the website of the Argentinian weekly newspaper “Perfil” that they wanted to further promote the economic ties between the countries. The creation of a common currency also plays a role here.

The “Financial Times” had reported that the neighboring countries wanted to start preparing for a common currency this week. The idea had already been discussed by politicians in both countries in 2019, but at the time it met with reservations from the Brazilian central bank.

Decision is not made

There are also concerns about the current plans: Brazil’s Finance Minister Fernando Haddad downplayed the idea of a common currency over the weekend. “Trade is really bad and the problem is FX, isn’t it? So we’re trying to find a solution, something common that could boost trade,” he told reporters. A decision has not yet been made.

Reduce dependence on the US dollar

The new currency, which is reportedly to be called “Sur” – South – is expected to boost regional trade and reduce dependence on the US dollar, according to the Financial Times. Initially, “Sur” should be issued in parallel with the Brazilian real and the Argentine peso.

In their joint article, both presidents stressed the need for good relations between their countries in order to strengthen regional integration. Problems between the two countries should be eliminated, regulations simplified and modernized and the use of local currencies encouraged.

Argentina is Brazil’s largest trading partner in the region, but it is also currently in a severe economic and financial crisis. The inflation rate rose to 94.8 percent in December 2022.

Mercosur is to be strengthened

The two heads of state Lula and Fernandez also want to strengthen the South American economic organization Mercosur. Mercosur is a regional association of the five South American countries Argentina, Brazil, Paraguay, Uruguay and Venezuela. If the introduction of the common currency is successful, the bilateral project could later be extended to other Latin American countries.

The “Financial Times” estimates that a currency union that stretches across Latin America could account for around five percent of global gross domestic product (GDP). In 2021, the euro zone will comprise a total of 14.8 percent of global GDP, the monetary union of the USA had a share of more than 15 percent in 2021. A Latin American monetary union would follow.

Return of Brazil in CELAC

Under Lula’s predecessor, right-wing populist Jair Bolsonaro, relations between Argentina and Brazil had been strained. To send a signal of reconciliation, Lula, who was President of Brazil from 2003 to 2010, had already chosen Argentina as the destination of his first foreign trip in office.

Lula’s trip to the neighboring country also marks Brazil’s return to the Community of Latin American and Caribbean States (CELAC). Brazil left the confederation in 2019 on the instructions of Bolsonaro, who had refused to participate due to the presence of Cuba and Venezuela.

Lula is Brazil’s President again

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