South America’s two largest economies, Brazil and Argentina, will this week announce preparations to develop a common currency, a move that could create the world’s second-largest currency bloc, the Financial Times said this Sunday (22 ).
Officials told the paper that the initial focus will be on what to name a new currency, which Brazil is proposing “sur” (south)could boost regional trade and reduce reliance on the US dollar.
“There will be a decision to study the necessary parameters for a common currency, ranging from fiscal issues to the size of the economy and the role of central banks”Argentine Economy Minister Sergio Massa told the FT.
Initially as a bilateral project, the currency bloc will be offered to other Latin American countries. “From Argentina and Brazil to the rest of the region,” said the Argentine minister.
The Financial Times estimates that a currency union covering all of Latin America would represent about 5% of global GDP, while the euro, the world’s largest currency union, represents 14% of global GDP measured in dollars.
“sur”
Brazil and Argentina discussed the idea back in 2019, but negotiations stalled due to opposition from the Central Bank of Brazil, an official close to the talks said. Now that both countries are controlled by left-wing leaders, political support is high.
Earlier this month, Sérgio Massa, Argentina’s economy minister, visited Brazil and met with Lula’s senior economic officials. He was received in São Paulo by Fernando Haddad, the current Minister of Finance, and Geraldo Alckmin, Vice President of Brazil.
Government sources said that “the meeting was very good because Brazilians have a perspective very similar to Massa’s, believing that this is a good way to avoid going through the dollar”.
The main focus of the visit was the establishment of a mutual coin, and the Brazilian government denied approving one single currency with Argentina, said the Globo newspaper, adding that the two countries are establishing one virtual currency to be used bilaterally in financial and commercial transactions.
The concept of mutual coin differs from one single currency because it does not include the abolition of the national currency of any of the countries.
According to the talks, the intention is to make it a regional currency and allow the rest of the South American countries to gradually join without having to abolish their national currency.
Source: Live Coins
Roy Brown is a renowned economist and author at The Nation View. He has a deep understanding of the global economy and its intricacies. He writes about a wide range of economic topics, including monetary policy, fiscal policy, international trade, and labor markets.
