In a historic decision, Brazil and Argentina have announced that they will begin preparations for a common currency next week. This was reported by the “Financial Times” on Sunday, and Brazil wants to call the new money “Sur” (South).
The two largest economies in South America want to shift the topic from their own dubious current events to one regarding currency.
Brazil and Argentina, who have lived close to each other for many years while preserving respected economic limits, are about to advance their relationship. According to officials who spoke to the Financial Times on Sunday, the two countries will announce this week that they are in the early stages of adopting a shared currency. The union, which might potentially result in the formation of the second-largest currency bloc in the world, will be followed by an open invitation to other Latin and South American nations.
I’m sorry, Sur
The development of the new currency, which Brazil wants to call the sur or “south,” is still in its infancy. It’s not simple to build a single currency and overhaul central banking systems entirely. First, the two countries must choose a currency that falls somewhere between the real of Brazil and the peso of Argentina. Literally. The currency rate between the two is 35 pesos to 1 real. The real is still weak compared to the dollar, valued around slightly under 20 cents, even though the real is strong compared to the peso. As a result, notwithstanding the challenges, a shared currency might make sense.
In the first 11 months of 2021, trade between the neighbours increased by more than 21% year over year, reaching $26 billion. Together, they may lessen reliance on US commerce and the US dollar, particularly if other Latin American nations join the bloc. The two countries will make this argument this week at a 33-nation summit of Latin American and Caribbean states. However, one side of the Brazil-Argentina equation carries significantly greater risk than the other:
Argentina’s central bank produces money to finance ongoing government projects, which results in a nearly 100% annual inflation rate for the peso. According to central bank figures, the amount of money in circulation has grown fourfold since 2019.
Brazil’s central bank has long held serious doubts about a common currency despite being by far the largest economy on the continent and the 11th largest in the world. After its 2020 default, Argentina is still largely cut off from the world’s financial markets, and with a 2018 rescue, it still owes the IMF more than $40 billion.
Surely EU? Despite the project’s strong foundation, it is believed that any rollout will be years, if not decades, away. The Euro did, after all, take 35 years to fully develop. But now that leftists who share their views are in charge of both countries, Brazil and Argentina are actively working on the initiative. Brazil at least has something to discuss besides the failed coup attempt from a few weeks ago.