The governments of argentina and brazil announce the start of joint work to prepare the process of creation of a common currency which would tentatively be called “South”. The plan is one of the most important proposals to be discussed at the CELAC summit (Community of Latin American and Caribbean States), which will take place on January 24 in Buenos Aires.
the Argentine president, Alberto Fernandezand his Brazilian counterpart, Luiz Inacio Lula da Silvaratified the project in a special article for PROFILE. It was also confirmed by the Economy Minister, sergio masa is statements to the British media financial timeswhere he expressed that in principle he would run in parallel with the Brazilian real and the Argentine peso and seeks to boost regional trade and reduce dependence on the dollar.
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“We have the intention of overcome barriers to our exchanges, simplify and modernize the rules and encourage the use of local currencies. A decision was also made to advance discussions on a common South American currency that could use for both financial and commercial flowsreducing operating costs and reducing our external vulnerability,” the presidents said.
In this sense, they stated that “the fair and supportive world to which we aspire” will be viable “in a common waywith the strategic sense of bilateral integration”, and that “nothing more emancipating than the brotherhood of peoples who come from the bottom of history to make the future yours“.
Massa: “The first step on a long road”
In dialogue with the English media, the Argentine Minister of Economy that “there will be a decision to start studying the parameters needed for a common currencythat includes everything from tax issues to the size of the economy and the role of central banks“. And he added: “It would be a study of commercial integration mechanisms”.
I don’t want to create false expectations… It is the first step on a long road”suggested the official, who recorded that the “processes can be very elastic“and that in the case of the formation of the euro it took 35 years.
In addition, the head of the Palace of Finance announced that, although it is a bilateral initiative, it will be offered to other nations in the region. While, financial times highlighted the role of both nations in Mercosur and added that a monetary union that cover all of Latin America would represent close to 5% of world trade.
On the other hand, it was mentioned that in case “South” materializes it would be the second largest common currencybehind the euro, which covers 14% of world GDP.
The “South” and Argentine inflation
Reference was also made to other precedents such as the project to create the “real weight”in which the former presidents coincided at the time Mauricio Macri Y jair bolsonarobut it also collided with the rejection of the Central Bank of the neighboring country.
Now, from the mentioned newspaper they stressed that things could be different because both countries “are governed by leftist presidents”, and they could count on political support. “The attractiveness of the proposal is more obvious for Argentina, where inflation is close to 100%. while the Central Bank prints money to finance spending,” the article added.
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Along these lines, remember that since the inauguration of Fernández to the Argentine Presidency the amount of money in circulation quadrupled and the highest denomination note, taking into account the “widely used” parallel exchange rate, equals less than three dollars.
Another of the ideas that are analyzed, in the event that a common currency is established between the countries, is that of generate an exchange between pesos and reais to offset trade deficits that may exist in the bilateral balance. A) Yes, the Government would not spend dollars from the reserves to pay for imports from Brazil.
PF/ds
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