Argentina, Brazil discuss common currency to reduce U.S. dollar reliance.
Argentina and Brazil, the two largest economies in South America, are in early talks to create a common currency, as part of a coordinated bid to reduce reliance on the U.S. dollar. Brazilian President Luiz Inacio Lula da Silva said Monday at a news conference in Buenos Aires, Argentina, that the currency would initially be designed for trade and transactions between Brazil and Argentina. It could later be adopted by fellow members of Mercosur, South America’s major trade bloc. Jimena Blanco, head of Americas at risk consultancy Verisk Maplecroft, described the talks as a “flamboyant” announcement designed “to bring major attention to an otherwise inconsequential” regional summit.
The proposal to create a common currency between Argentina and Brazil has been met with skepticism by some analysts, who cite the discrepancies between the two economies and the rapid shift of political winds in the region. Brazilian Finance Minister Fernando Haddad said that the adoption of a common currency was not designed to replace the Brazilian real and the Argentine peso. He added that the currency does not yet have a name or deadline, nor would the countries seek a euro-style monetary unification. Mario Marconini, managing director at consulting firm Teneo, highlighted that it took European countries decades to reach a point where member countries felt ready to move forward with a common currency, and this process followed a sustained period of coordination and a relatively high level of alignment in macroeconomic policy.
Argentine President Alberto Fernandez said that, while it was not yet clear how the sole currency could function in the region, Lula and he agreed that depending on foreign currencies for trade was harmful. Lula was “diplomatic” not to contradict Argentina’s Economy Minister Sergio Massa, who had spoken on record about the two countries working toward a common currency, but fell short of committing to anything other than initial exploratory talks on bilateral currency matters.
The idea of a common currency between Argentina and Brazil has been met with skepticism by some analysts, who cite the discrepancies between the two economies and the rapid shift of political winds in the region. Despite this, Argentine President Alberto Fernandez and Brazilian President Luiz Inacio Lula da Silva have agreed that depending on foreign currencies for trade is harmful, and have begun exploratory talks on bilateral currency matters. Brazilian Finance Minister Fernando Haddad has stated that the adoption of a common currency is not designed to replace the Brazilian real and the Argentine peso, and that the currency does not yet have a name or deadline, nor would the countries seek a euro-style monetary unification.
It took European countries decades to reach a point where member countries felt ready to move forward with a common currency, and this process followed a sustained period of coordination and a relatively high level of alignment in macroeconomic policy. Jimena Blanco, head of Americas at risk consultancy Verisk Maplecroft, believes the ‘Sur’ will share the same destiny as the Peso Andino, which never got off the ground, or the Sucre, the digital payment currency used by Venezuela and ideologically aligned countries that has no more than symbolic value and has failed to dent the importance of the U.S. dollar in regional trade.
At this point, it is uncertain whether Argentina and Brazil will be able to successfully create a common currency, given the discrepancies between the two economies and the rapid shift of political winds in the region. However, the two countries have begun exploratory talks on bilateral currency matters, and have agreed that depending on foreign currencies for trade is harmful. It will be interesting to see the outcome of these talks, and whether the two countries will be able to successfully create a common currency.
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