Argentina, Brazil to renew discussions on common currency

Argentina and Brazil will renew discussions on creating a common currency during the 7th Summit of Heads of State and Government of CELAC on January 24.

Per a joint statement by Argentinian president Alberto Fernandez and Brazilian leader Luiz Inacio Lula da Silva, they aim to overcome barriers to regional trade. The new currency will simplify, modernize and reduce dependence on foreign notes such as the U.S. dollar.

"We also decided to advance discussion of a common South American currency that can be used for financial and commercial transactions, reducing operational costs and our external vulnerability," the statement read.

Fernandez and da Silva also said they planned to invite other South American nations to the discussions.

Reports suggested that Colombian president Gustavo Petro would likely attend the summit along with Chilean leader Gabriel Boric. Controversial leaders, such as Venezuela's Nicolas Maduro and Cuba's Miguel Diaz-Canel, will also attend the event. Meanwhile, Mexico will not participate in the summit.

Multibank Review
Visit Site
eToro Review
Visit Site
4.8/5 Review
Visit Site

Officials said the currency — Brazil suggests naming it "sur," meaning "south" — would first run in parallel with the Argentinian peso and Brazilian real. Argentinian economy minister Sergio Massa added that the two countries would start studying the parameters required for a shared currency.

"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."

Sergio Massa, Economy Minister of Argentina

Argentina and Brazil will determine the role of central banks in managing the common currency. They also need to work out fiscal issues and the size of the economy. Massa said a shared currency also meant trade integration.

The Argentinian minister said he did not want to create "false expectations" regarding the plan. He predicted that it would take "many years" for the plan to come to fruition, saying that it took the E.U. 35 years to roll out the euro.

As the two largest economies in the region, Argentina and Brazil have been discussing a shared currency for decades. However, prevalent macroeconomic imbalance and political hurdles have hampered the plan's progress.

Analysts note that since leftwing politicians now lead both countries, there will be stronger support to ensure its continuation.

Latin American nations have been trying to reduce the use of the greenback in the past year. A common currency combined with South America's economic growth can boost the region's dependence. However, some of these countries are wary of the unstable global economy.

"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," Bolivian political scientist Manuel Canelas said.

If the plan works out, a currency representing all of South America will account for five percent of global economic output.

Argentina's economic volatility

According to analysts, the urgency to push a shared currency is especially high for Argentina, which is currently battling high inflation. The country's inflation nearly hit 100 percent due to its central bank's move to print more pesos to fund spending.

In Fernandez's first three years leading Argentina, the amount of money circulating in public quadrupled. Based on the parallel exchange rate, the highest peso denomination is currently worth less than $3.

Analysts said this might hinder the progress of the common currency, given that Brazil's inflation rate remained at 5.8 percent.

Another issue the opposition in Brazil may bring up is Argentina's inability to obtain loans from international organizations. Since defaulting on its debt in 2020, Argentina is no longer considered in international debt markets.

Currently, Argentina still owes more than $40 billion to the International Monetary Fund from a bailout in 2018, showcasing the high volatility in the country's economy.

At the moment, Argentina and Brazil's trade is flourishing. The amount reached $26.4 billion within the first 11 months of 2022, a 21 percent increase from the previous year. The two countries are the driving force behind the Mercosur trade bloc, which also encompasses Uruguay and Paraguay.