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Doubts over the common currency in South America.

 While eco­nom­ists have ques­tioned the viab­il­ity of the idea, polit­ical ana­lysts have been less dis­missive, point­ing

South America

out that the desires of South Amer­ica’s mainly leftwing pres­id­ents to pro­mote regional integ­ra­tion and chal­lenge the US dol­lar’s dom­in­ance should not be under­es­tim­ated. For the first time in more than seven years, Brazil and Argen­tina are polit­ic­ally aligned under left­ist lead­ers, with both Luiz Inácio Lula da Silva and Alberto Fernán­dez keen to present a united front. Brazil’s pres­id­ent said in Buenos Aires last week that «God will­ing», the fin­ance min­is­ters and lead­ers of the two cent­ral banks would have the «intel­li­gence, com­pet­ence and good sense» to begin work that could even­tu­ally pro­duce a com­mon cur­rency. His Argen­tine coun­ter­part said while he did not know how the com­mon cur­rency would work, the two nations would enjoy a «deeper stra­tegic bond» in the future.


The two lead­ers made clear an even­tual com­mon cur­rency would, at first, be lim­ited to use in trade and would run in tan­dem with Brazil’s real and the Argen­tine peso, rather than repla­cing them. This is not the first time that the idea has been floated. People close to the pre­vi­ous rightwing admin­is­tra­tion in Brazil con­firmed that former fin­ance min­is­ter Paulo Guedes had defen­ded the idea sev­eral times on the grounds the cur­rency would help impose fiscal dis­cip­line and that there would be fewer global cur­ren­cies in the future, so it would be bene­fi­cial if the region estab­lished its own. Latin Amer­ica’s left has long wanted to reduce the region’s his­toric depend­ence on the US and sees a com­mon cur­rency as a clever way to claim greater eco­nomic sov­er­eignty while also pur­su­ing a long-held dream of closer polit­ical union.

In a nod to those ten­sions with its rival north of the equator, Brazil’s cur­rent fin­ance min­is­ter, Fernando Had­dad, last year co-authored a piece sug­gest­ing a com­mon cur­rency called the «sur», or south. Under­pin­ning the polit­ical sup­port is a desire to sta­bil­ise Argen­tina’s battered eco­nomy. «Argen­tina needs an external anchor to restore cred­ib­il­ity,» said eco­nom­ist Rodrigo Wag­ner, an expert on new cur­rency adop­tion. At roughly $30bn in 2022, flows between Brazil and Argen­tina are lower than the $40bn level recor­ded a dec­ade ago.

«Brazil wants a lar­ger mar­ket for its exports and to lower trade bar­ri­ers,» he said. A com­mon unit of exchange would be an «ulti­mate vehicle» towards achiev­ing both. Buenos Aires has been cut off from inter­na­tional debt mar­kets since a default in 2020 and has tight for­eign exchange con­trols. The real, mean­while, is fully con­vert­ible, and a bet­ter grip on gov­ern­ment spend­ing means that Brazil has full access to inter­na­tional mar­kets.

Annual infla­tion in Argen­tina reached 94.8 per cent in Decem­ber, against a far more man­age­able 5.79 per cent in Brazil. «My per­cep­tion is this com­mon cur­rency is not going to be feas­ible. » .
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