The presidents of Brazil and Argentina plan to create a common Latin American currency.
Presidents Lula Ignacio de Silva of Brazil and Alberto Fernandez of Argentina announced discussions at the Community of Latin American and Caribbean States (CELAC) conference this week in Buenos Aires, reviving a perennial proposal to challenge the dominance of the US dollar in the region.
In an article Published in Perfil, an Argentinian newspaper, Presidents Lula and Fernandez wrote that their countries were exploring options to create a common currency called the sur (south in Spanish), intended to encourage financial and trade transactions between the countries. Argentine Economy Minister Sergio Massa added that Brazil and Argentina would invite other Latin American countries to join, but urged patience, citing the difficulty of trade integration.
The move illustrates how Lula is advancing his campaign promises to foster greater economic interdependence in the region. Elected to power at a time when the majority of Latin American countries have leftist heads of state, including heads of state from across the region five biggest economiesLula and other leaders enjoy close ties, raising the possibility of a new era of collaboration for rapidly developing countries to counter the economic influence of the United States.
The day after the announcement, Brazilian Finance Minister Fernando Haddad downplayed the idea to completely overhaul the real, saying that countries were exploring all opportunities to increase their trade. Meanwhile, Argentina is battling its worst inflation in three decades, while economic growth in Brazil is expected to slow as Lula pushes ahead with his plans to increase government spending.
Galloping inflation rate in Argentina:
The gaucho: Latin America flirted with a common currency before
In 1987, the leaders of Brazil and Argentina announcement the creation of a “monetary unit to allow regional payments”, called the gaucho. Sound familiar?
The idea of a common currency has long had success in the region, with populist leaders pointing to the dominance of the dollar as evidence of neocolonialism. Three Latin American countries (Ecuador, El Salvador and Panama) use the greenback as their primary national currency, ensuring outsized US influence in their economies.
However, forming a common currency is not an easy task. The initial negotiations for the European Union’s unified currency lasted more than a decade. And, when the euro was launched in 1999, it was considered an invisible currency for the first three years and was only used for accounting purposes and electronic payments. It wasn’t until 2009 that the Lisbon Treaty formed the Eurogroup, the currency’s official governing body.
Demand for an alternative to the US dollar is growing around the world, with Russia and China promoting their currencies for international payments, especially after recent US sanctions against Russia raised the possibility of the dollar becoming a tool of political effort.
In addition, the relative strength of the dollar in 2022 has led to an increase in consumer prices and the burden of debt repayment in some regions, with the new government of Myanmar. saying the dollar was used to “intimidate small nations”.