Brazil and Argentina: hand in hand to set up a common currency

Brazil and Argentina: hand in hand to set up a common currency

Two giants against inflation – The global Covid-19 pandemic (and all its consequences) have damaged many economies around the world. Since then, the whole planet has seen theinflation everywhere, sparing no sector, no economic agent. L’Argentina is plagued by structural inflation that has lasted for decades. Monetary issues are among the major present and future challenges. If there was any doubt, the monetary rapprochement of the two largest economies in South America (with the Brazil) brings water to the overhaul of the currency mill.

Brazil-Argentina: two destinies linked by a single currency?

According to a information reported by the Financial Times at the end of last week, the Brazilian and Argentinian presidents will discuss, this week, the creation of a common currency. Freshly enthroned in Brazil, Lula and his government begin their mandate with a tricky question which will probably be resolved through cooperation.

“There will be a decision to start studying the necessary parameters for a common currency, which includes issues ranging from budgetary issues to the weight of the economy (of each country), including the role of central banks. »

Sergio Massa, Argentine Minister of Economy

The project is therefore in its infancy and should see the first bricks laid this week, again according to the Financial Times. The two heads of state have planned discussions and an official announcement with the media in the coming week.

Nevertheless, Sergio Massa shows itself to be cautious and well aware of the sum of complex issues to be resolved in order to move forward with a common currency project. Monetary cooperation offers new prospects for development, circulation of goods, services, people and capital. However, this is not a panacea, and the Minister confirms it:

” [il] not [veut] not create false hopes. This is the first step on a long road that Latin America must take. »

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New monetary layer: a remedy for a continent in crisis?

United, the two economic behemoths can influence the center of gravity of the continent and, why not, create a new dynamic on the basis of a single currency, as within the European Union.

These two countries alone account for approximately 260 million people, more than 50% of the population of the South American continent. The project is only at the discussion stage for the moment. As we briefly touched on, a mountain of commercial, legal and practical questions arise. This build will take timein the same way as the European integration which has been spread over several decades.

All neighbors and regional partners are invited to the discussions. If the project were to see the light of day in an effective way, it is difficult to imagine that other countries would not approach this system. Such initiatives can create new dynamics economic, intracontinental and impact on growth in South America. The area currently represents nearly 5% of global GDP.

The project has actually been in the pipeline for several years and was mentioned in 2019. Central Bank of Brazil vetoed at the time. the new political momentum Brazil to give a second wind to this economic project, which if implemented, could shape the growth of the continent for the coming decades.

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