Explained: Why Brazil And Argentina Planned A Common Currency

Brazil and Argentina are planning to combine real and peso into a ¡®currency union¡¯. This move, if succeeded, will propel the united currency to second only the Euro-the largest currency bloc in the world.

Presidents Luiz Inacio Lula da Silva and Alberto Fernandez of Brazil and Argentina plan to,¡¯ advance discussions on a common South American currency¡¯. They said in joint letter, Reuters reports.

Bloomberg

The move seeks to remove the Latin American dependency on the US dollar and boost trade in the region. The currency, Sur(South), a name suggested by Brazil would be the first prototype of the common currency and would run parallel with the Brazillian Real and the Argentine Peso.

¡°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¡­It would be a study of mechanisms for trade integration. I don¡¯t want to create any false expectations?.?.?. it¡¯s the first step on a long road which Latin America must travel.¡± The Financial Times quoted Sergio Massa Argentina¡¯s finance minister.

Roadblocks

Earlier talks on the proposal hit a dead end when Brazil¡¯s Central Bank turned down the idea. But now with a left-wing government at home, the situation seems more plausible as Argentina also has a left-wing orientation with Brazil.

Reuters

¡®The attractions of a new common currency are most obvious for Argentina, where annual inflation is approaching 100 per cent as the central bank prints money to fund spending. During President Alberto Fern¨¢ndez¡¯s first three years in office, the amount of money in public circulation has quadrupled, according to central bank data, and the largest denomination peso bill is worth less than $3 on the widely used parallel exchange rate.

However, there will be concern in Brazil about the idea of hitching Latin America¡¯s biggest economy to that of its perennially volatile neighbour. Argentina has been largely cut off from international debt markets since its 2020 default and still owes more than $40bn to the IMF from a 2018 bailout.¡¯ The Financial Times writes.

The worth of the currency

AP

¡®The Brazilian government is looking at stablecoins as a possible reference¡¯. According to Reuters.
As issuers look to broaden uses for digital currencies, which are typically unregulated and unpredictable, stablecoins¡ªdigital coins tied to an asset like gold or major currencies like the euro, pound, and dollar¡ªhave arisen.