Argentine President Alberto Fernandez (R) and Brazilian President Luiz Inacio Lula da Silva (L) shake hands after signing a series of agreements during a press conference in Buenos Aires.
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Argentina and Brazil, the two largest economies in South America, are in early talks to create a common currency, as part of a coordinated bid to reduce dependence on the US dollar.
But some analysts are very skeptical, dismissing the proposal as “pie in the sky” because of the differences between the two economies and the rapidly changing political winds in the region.
“Our finance ministers, each with their own economic team, can make proposals for foreign trade and transactions between the two countries carried out in a common currency,” said Brazilian President Luiz Inacio Lula da Silva at a press conference in Buenos. Aires, Argentina, according to Reuters.
Speaking on his first international visit since taking office, Lula said the currency was originally designed for trade and transactions between Brazil and Argentina. It can then be adopted by members of Mercosur – South America’s main trade bloc.
Brazilian Finance Minister Fernando Haddad said the adoption of a common currency was not designed to replace the Brazilian real and the Argentine peso. He reportedly added that the currency does not yet have a name or deadline, nor will the countries pursue euro-style monetary unification.
Jimena Blanco, head of American risk consultancy Verisk Maplecroft, described the talks as a “flamboyant” announcement designed “to bring major attention to an otherwise insignificant regional summit”.
“Three decades after its inception, MERCOSUR has yet to achieve the primary goal of trade integration for its four founding members,” Blanco told CNBC via email. “Developing and implementing a common South American currency is, therefore, pie in the sky.”
“Neither Argentina nor Brazil enjoys the economic or political conditions necessary to initiate such fundamental changes, which will take decades to be effectively rolled out,” Blanco said.
“We expect ‘Sur’ to share the same fate as the Andino Peso, which has never gone down, or Sucre, the digital payment currency used by Venezuela and ideologically aligned countries that has no symbolic value and fails. dent the importance of the US dollar in regional trade,” he added.
Exploratory talk
Argentine President Alberto Fernandez said that, while it was not clear how the single currency would work in the region, Lula and he agreed that depending on foreign currencies for trade was dangerous.
“It’s hard to believe that Argentina and Brazil will actually move in this direction because of the differences in the two economies at this stage,” Mario Marconini, managing director at consulting firm Teneo, told CNBC via email.
Marconini highlighted that European countries needed decades to reach a point where member states felt ready to move forward with a common currency, and this process followed a period of constant coordination and a relatively high level of alignment in macroeconomic policies.
Brazilian Finance Minister Fernando Haddad (2nd from left), and Argentine Economy Minister Sergio Massa (2nd from right), signed the agreement together.
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He added that Lula was “diplomatic” in order not to contradict Argentina’s Economy Minister Sergio Massa, who had spoken about the two countries working towards a common currency.
“However, Lula did nothing but initial exploratory discussions on bilateral currency issues,” Marconini said.
“Lula’s willingness to play this way reflects the government’s desire to continue good relations with Argentina. [and Latin America] rather than anything concrete about how to move forward on something that doesn’t make economic sense these days.”