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Brazil and Argentina work for a common currency

Brazil’s President Luiz Inacio Lula da Silva and Argentina’s President Alberto Fernández wrote a joint piece to express their intention to increase cooperation between the two economies through the development of a common currency.
Mentioning the article published on the Argentine website Perfil, the two countries “intend to overcome the barriers to their exchanges, simplify and modernize the rules and encourage the use of local currencies”.

A winning bond

In line with this intention, Lula selected Argentina for his inaugural international trip, keeping with the custom of first visiting Brazil’s primary trading partner in the region.
Brazil and Argentina have seen a significant increase in their trade, reaching $26.4 billion (+21%) in the first 11 months of 2021. The two nations play a major role in the Mercosur trade bloc, which also includes Paraguay and Uruguay.

The plan, discussed at the Buenos Aires summit at the end of January, aims to involve other South American nations in order to create the world’s second-largest currency bloc.

Towards a continental project

The initial focus of the new currency, which Brazil has proposed naming “sur” (south), will be on how it could increase regional trade and reduce dependency on the US dollar. Initially, the new currency would be used alongside the Brazilian real and Argentine peso.

As confirmed by Argentina’s economy minister Sergio Massa to the Financial Times, “there will be […] a decision to start studying the parameters needed for a common currency, which includes everything from fiscal issues to the size of the economy and the role of central banks”. 

At the beginning, the initiative would be a bilateral project, but the nations plan to extend the offer to other countries in the region. The currency union would represent about 5% of global GDP, according to estimates by the Financial Times. But the project is expected to take several years to fully develop, similar to the 35 years it took Europe to create the Euro. 


Read also: Gas infrastructure financing prepares to reverse Argentina’s energy balance
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