A common currency between Argentina and Brazil: what we know about "sur", the plan for a South American currency

The economic challenges of Lula Da Silva in his new government 1:12

(CNN Spanish) --

The presidents of Argentina and Brazil proposed this Sunday the creation of a common South American currency, in view of the first visit of the Brazilian Luiz Inácio Lula Da Silva to Argentina, in his current term.

According to a joint article signed by both Lula and his Argentine counterpart, President Alberto Fernández, the creation of a common currency is proposed to "reduce operating costs" and "external vulnerability."

The Brazilian president's visit to Argentina will be the first of this level in three years.

In this bilateral meeting, trade will be a key issue. 

"We decided to advance discussions on a common South American currency that can be used for both financial and trade flows, reducing operating costs and reducing our external vulnerability," says the article by Fernández and Lula.

"Together with our partners, we want MERCOSUR to be a platform for our effective integration into the world, through the joint negotiation of balanced trade agreements that respond to our strategic development objectives," the text added.

• Will Lula Da Silva be able to exceed the goals he has set for himself?

  These are the new challenges of Brazil

The President of Brazil, Luiz Inácio Lula da Silva (right), poses for a photograph with the President of Argentina, Alberto Fernández (left), during a bilateral meeting in Brasilia on January 2, 2023. (Credit: EVARISTO SA/AFP via Getty Images)

The Financial Times newspaper reported on Sunday that the two countries would announce this week joint preparatory work for a new currency that would not only eventually include the two largest countries in the region, but would invite other countries as well.

This would create "the world's largest currency bloc" after the euro, according to the newspaper.

advertising

An economic block that represents the countries of Latin America could represent 5% of the global Gross Domestic Product, according to an estimate by the Financial Times.

"The initial focus will be on how a new currency, which Brazil suggests calling the 'south', could boost regional trade and reduce dependence on the US dollar," officials were quoted as saying by the newspaper.

The plan, to be discussed at a summit in Buenos Aires this week, will focus on how a new currency Brazil suggests calling the "south" could boost regional trade and reduce reliance on the US dollar, Reuters reported.

The Financial Times newspaper quoted Argentina's Finance Minister Sergio Massa as saying that the initial decision will be to "study the parameters that are needed for a common currency," which, according to the official, range from "fiscal issues to the size of the economy and the role of central banks".

There will also be a series of trade integration mechanisms, Massa told the newspaper.

Although this is an important announcement, Massa told the newspaper that it is a "first step" in a long road that the region must travel, because although initially there was talk of a common currency between Brazil and Argentina, the invitation to join said bloc is open to all of Latin America, and this initiative is projected to take several years.

The proposal poses a series of economic challenges, political analyst and journalist Gustavo Segré told CNN Radio Argentina.

"A common currency is a complex project. The economic indicators of one country and another have nothing to do with it. It is as if you are in a car at 100 km/h and another at 10 km/h," said the analyst, and insisted : “It is very difficult to do that”.

According to Segré, the idea of ​​a common currency "could be possible once Argentina's economic indicators look a little more like those of Brazil."

"Yes, you can go in stages in which the first is to reinforce the local currency system," explained Segré, adding that "it will not happen in the short term for sure."

(VANDERLEI ALMEIDA/AFP via Getty Images)

Common currency, an unresolved proposal

The idea of ​​a common currency for South America is not new.

In fact, the proposal has been echoed on several occasions, without anything being resolved or progress beyond political meetings.

One of these times the proposal was made during the right-wing governments of Jair Bolsonaro and Mauricio Macri, in June 2019, when sources from three Argentine ministries confirmed to CNN that there were talks at the ministerial level between the two governments to have a common currency. which would be called actual weight.

Meanwhile, last year, the current Brazilian Economy Minister, Fernando Haddad, published an article also signed by Gabriel Galipolo in the Folha de Sao Paulo newspaper, in which he proposed "an integration project that strengthens South America." .

"The currency would be issued by a South American Central Bank, with an initial capitalization made by the member-countries in proportions commensurate with the respective participation of each country in regional trade," Haddad and Galipolo wrote.

"The capitalization would be made with the international reserves of the countries and/or with a tax on the extra-regional exports of each country. The new currency could be used both for commercial and financial flows between countries in the region."

According to this proposal, each member country of the bloc would receive an initial endowment of SUR, would be free to adopt the currency domestically, and financial rights and international reserves, "would also provide a counterpart for the equivalent issuance of SUR," says the Folha article.

However, in early January 2023, Haddad denied the existence of a proposal to create a single currency, Brazilian outlet Estadao reported, telling a journalist that "There is no single currency, there is no such proposal, you will know about it first." at the exit of the Planalto Palace.

Brazil Argentina