Argentina and Brazil are in the early stages of renewing discussions on forming a common currency for financial and commercial transactions, reviving an often-discussed plan that faces many political and economic obstacles.
South America’s two largest economies have been considering options for currency coordination for decades, often to counter the dollar’s influence in the region. Persistent macroeconomic imbalances in both countries, along with persistent political obstacles to the idea, hampered practical progress.
The latest negotiations were initiated by Buenos Aires, according to Brazilian government officials. They are in the early stages and there is no timeline for completion, said the official, who asked not to be identified because the discussions are not public. Brazil’s agreement was no more than a nod to talks, the person said.
A spokesman for Argentina’s president did not immediately respond to a request for comment sent outside business hours.
On the eve of Monday’s meeting in Buenos Aires, Brazil’s Luiz Inacio Lula da Silva and Argentina’s Alberto Fernandez wrote a joint statement in the Argentine newspaper Perfil that noted that sharing the currency could help boost regional trade.
“We intend to overcome barriers to exchange, simplify and modernize the rules and promote the use of local currencies. We also decide to continue discussions on a South American currency that can be used for financial and commercial transactions, reducing operational costs and external vulnerabilities, ” said the statement.
The latest proposal comes as Argentina battles the highest inflation in three decades and many emerging markets seek alternatives to the strong US dollar. Brazil’s economy is expected to experience anemic growth this year, while Lula’s new government plans to increase public spending significantly to meet campaign promises.
There are no discussions on a common currency for commercial transactions and the plan does not include a single currency for all regions, said another official, from Brazil’s Finance Ministry, who asked not to be named.
In an interview with the Financial Times published Saturday, Argentina’s Economy Minister Sergio Massa said that Brazil and Argentina will invite other countries in Latin America to join, but he does not want to create “false expectations” because trade integration will take a long time. .
In 1987, the leaders of the two countries announced the creation of a common unit of account, called the gaucho, to measure trade between the nations. The idea could not be implemented amid disagreements and because of the high volatility affecting the country.
They have the same challenges today. Argentina has annual inflation of almost 100% and presidential elections later this year, compared to Brazil’s 5.8%. The rapid depreciation of the peso compared to the real and the autonomy of the Brazilian central bank, which could oppose the initiative, are also significant obstacles.
Globally, countries are looking for ways to avoid using the US dollar and trying to sell more of their debt in local currencies. Russia has taken foreign payments in rubles after sanctions due to the invasion of Ukraine, and countries in Asia have been looking to increase the use of China’s Yuan. India and the United Arab Emirates are seen expanding their non-oil trade in rupees.
-With help from Carolina Millan.
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