Brazil and Argentina to start preparations for a common currency

Brazil and Argentina this week announced they are starting work on a common currency, which would create the world’s second largest single currency.

South America’s two largest economies will discuss the plan at a meeting in Buenos Aires this week and have called on other Latin American countries to join.

The first objective will be how the new currency, which Brazil refers to as “sur” (southern), can boost regional trade and reduce dependence on the US dollar, officials told the Financial Times. This is moving in the same way as the Brazilian real and the Argentine peso.

“It will be . . . the first decision to study the key parameters of the common currency, which includes everything from the economy to economic growth and the role of central banks,” Argentina’s Finance Minister Sergio Massa told the Financial Times.

“It would be a study of the methods of commercial integration,” he added. “I don’t want to create any false hopes . . . it is the first step on the long road that Latin America must travel.”

Initially the work of the two countries, the work will be offered to other countries in Latin America. “It’s Argentina and Brazil calling all the other countries,” said the Argentine minister.

The financial deal that covered the rest of Latin America would represent about 5 percent of global GDP, according to the FT. The world’s largest currency, the euro, accounts for about 14 percent of global GDP in dollar terms.

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Other currency groups include the CFA franc used by some African countries and pegged to the euro, and the East Caribbean dollar. However, this includes the smallest part of the global economy.

This project is expected to take many years to complete; Massa also said that it took Europe 35 years to create the euro.

An official announcement is expected during Brazilian President Luiz Inácio Lula da Silva’s visit to Argentina that begins Sunday night, the veteran’s first foreign trip since taking power on January 1.

Brazil and Argentina have discussed the same currency in the past few years, but the talks were based on the opposition of the central bank of Brazil to the idea, an official close to the talks said. Now that the two countries are ruled by leftist leaders, there is a lot of political support.

A spokesman for Brazil’s Finance Ministry said he had no information about the working group on the common currency. He said that Finance Minister Fernando Haddad also wrote an article last year, before taking up his current job, proposing a common South American digital currency.

Trade is improving between Brazil and Argentina, reaching $26.4bn in the first 11 months of last year, about 21 percent over the same period in 2021. The two countries are the ones who run the Mercosur trade agreement, which includes Paraguay and Paraguay. Uruguay.

The lure of the new local currency is obvious in Argentina, where annual inflation is approaching 100 percent as the central bank prints money to support spending. In President Alberto Fernández’s first three years, public spending quadrupled, according to central bank data, and the largest peso bill is worth less than $3 at the most widely used exchange rate.

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However, there will be concern in Brazil at the prospect of taking a hit from Latin America’s biggest economy and that of its struggling neighbor. Argentina has been cut off from international markets since it defaulted in 2020 and owes more than $40bn to the IMF from the 2018 bailout.

Lula will be in Argentina for Tuesday’s meeting of the 33-nation Community of Latin American and Caribbean States (CELAC), which will bring together the region’s new left-wing leaders for the first time since elections last year. the right way.

Colombian President Gustavo Petro is expected to attend, officials said, along with Chile’s Gabriel Boric and other controversial figures such as Venezuela’s socialist president Nicolás Maduro and Cuban leader Miguel Díaz-Canel. Mexican President Andrés Manuel López Obrador usually avoids foreign travel and has not planned to participate. Demonstrations against Maduro’s presence are expected in Buenos Aires on Sunday.

The Minister of Foreign Affairs of Argentina, Santiago Cafiero, said that the meeting will also provide agreements related to greater regional integration, protecting democracy and fighting climate change.

Above all, he told the Financial Times that the region must discuss the economic development it needs at a time when the world is hungry for food, oil and minerals in Latin America.

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“Will the region provide this in a way that changes its economy [solely] be a producer of products or services in a way that promotes social justice [by adding value]?,” he said.

Alfredo Serrano, a Spanish economist who runs the regional political think tank Celag in Buenos Aires, said the meeting will discuss how to encourage value chains to take advantage of the region’s opportunities, as well as progress in financial cooperation.

“Financial and foreign resources are very important,” he said. “It is possible today in Latin America, because of its strong economy, to find instruments that replace dependence on the dollar. That will be an important step forward.”

Political analyst and former Bolivian government minister Manuel Canelas said CELAC, which was established in 2010 to help Latin American and Caribbean governments coordinate policy without the US or Canada, is the only regional organization that has survived. the past decade while others have fallen by the wayside.

However, the left-wing presidents of Latin America are now faced with the challenges of the global economy, domestic politics and many coalition governments, and little interest by citizens in regional integration.

“Because of this, all communication methods will be very careful. . . and it must focus on delivering results and showing why it is effective”, he warned.

Additional reporting by Bryan Harris in São Paulo

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