The possibility of a new common currency between Brazil and Argentina became one of the focuses of President Luiz Inácio Lula da Silva’s visit to the neighboring country. On his first international trip since taking office at the beginning of the month, the president-elect discussed the creation of what was popularly nicknamed “Sur” and “Peso Real”.
“We decided to move forward in discussions on a common South American currency, which can be used for both financial and commercial flows, reducing operating costs and our external vulnerability,” he informed in a joint letter released before the meeting between Lula and the president. Argentine, named Alberto Fernández.
Already in a speech during the meeting, Lula gave gas to the idea: “Why not try to create a common currency as has been tried among the Brics countries? I think, with time, this will happen. And I think it needs to happen.”
It didn’t take long for the speculation to start. Several people, upon hearing the news, understood that Brazil and Argentina might create a single currency, like the euro. In automatic understanding, they thought that it would be a single currency between the two largest economies in South America and that it would replace the Argentine peso and the Brazilian real.
But the truth is, it’s not like that.
What we will see in this article:
After all, what is the proposal?
The project for a single currency between Brazil and Argentina has become one of the most talked regarding topics in recent days. But it is not true that it is something that replaces the real and the peso, clarifies the Minister of Finance, Fernando Haddad, last Monday (23).
At an event with businessmen from both countries in Buenos Aires, Haddad said that what is being studied is the viability of a digital currency that is common between the two countries to be used in commercial exchanges, with the aim of reducing dependence on the dollar.
“We received from our presidents an order not to adopt an idea that was from the previous government, which was not carried out, of the single currency. My predecessor, Paulo Guedes, was very much in favor of a single currency between Brazil and Argentina. That’s not what we’re talking regarding. This generated enormous confusion, including in the Brazilian and international press,” said Haddad.
What will happen?
The common currency will still be discussed by a working group and that means that the implementation will not be immediate – but over the years. So much so that Haddad explained that the idea serves to give dynamism to trade between Latin American countries, such as payment in local currencies eliminating the dollar and the Reciprocal Payment and Credit Agreement (CCR), a type of clearing house between the countries of the continent, something that was abolished by Brazil in 2019.
“This is not the idea of a single currency. It is a question of moving forward with the planned instruments that did not work satisfactorily, neither payment in local currency nor the CCRs today provide a guarantee that we can advance in trade in the way the presidents intend”, concluded the minister.
In the end, the proposal under study between Brazil and Argentina is more in line with what appears to be a virtual currency, which would not replace national currencies.
It is worth remembering that in April of last year, Haddad had published, together with economist Gabriel Galípolo, an article in the newspaper Folha de S. Paulo already suggesting a common currency for all of South America.
They defended – in the text – that the creation of the currency might help countries to protect themselves from possible sanctions imposed by foreign powers, mainly the US, which has the power to issue an international currency, the dollar.
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