Leave the US dollar, Argentina and Brazil will create a common currency

Bisnis.comJAKARTA- Brazil and Argentina Back to discussing preparations currency at a summit in Buenos Aires this week and will invite other Latin American countries. Discussions on the currency between Brazil and Argentina have taken place in recent years, but the talks broke down due to the opposition of Brazil’s central bank to the idea.

Quoting news FinancialTimesthe initial focus will be on how the new currency, which Brazil says is called Sur, can increase regional trade and reduce dependence on the US dollar.

“There will be a decision to start studying the necessary parameters for a common currency, covering everything from fiscal issues to the size of the economy and the role of the central bank,” Argentina’s economy minister said. Sergio Massa, quoted Monday (23/1/2023).

Sergio Massa said that the discussion on a common currency would be a study of the trade integration mechanism and would be the first step in the long journey that Latin America had to travel.

According to the Financial Times, a monetary union covering all of Latin America would represent around 5% of global GDP. The world’s largest monetary union, the euro, accounts for around 14% of global GDP when measured in dollars.

The project should take years to materialize where it took 35 years for Europe to create the euro.

An official announcement is expected during Brazilian President Luiz Inácio Lula da Silva’s visit to Argentina, which begins on Sunday evening. Previous talks stumbled on rejection from the Central Bank of Brazil, but now that both countries are led by left-leaning leaders, there would be greater political support.

Trade developments between Brazil and Argentina totaled $26.4 billion in the first 11 months of last year, up nearly 21% from the same period in 2021. Both countries are the engine of the regional trading bloc of Mercosur, which includes Paraguay and Uruguay.

Argentina’s annual inflation was previously close to 100%, with the central bank printing money to fund spending. During President Alberto Fernández’s first three years in office, the amount of money in circulation quadrupled, and the largest denominated peso was valued at less than US$3 at the widely used parallel exchange rate.

Argentina has been largely cut off from international debt markets since its 2020 default and still owes the IMF more than US$40 billion from its 2018 bailout.

The Buenos Aires meeting will see the participation of Colombian President Gustavo Petro, Chile’s Gabriel Boric and other controversial figures such as Venezuelan Socialist Revolutionary President Nicolás Maduro and Cuban leader Miguel Díaz-Canel. But Mexican President Andrés Manuel López Obrador has generally avoided traveling abroad and was not expected to attend.

Argentine Foreign Minister Santiago Cafiero said the conference would also make commitments for greater regional integration, the defense of democracy and the fight against climate change. The region needs to discuss what kind of economic development it wants at a time when the world needs food, oil and minerals.

Alfredo Serrano, a Spanish economist, said the conference will discuss how to strengthen regional value chains to take advantage of regional opportunities, as well as making progress in monetary unions.

“Today it is possible in Latin America, given its strong economy, to find instruments that replace dependence on the dollar. It will be a very important step forward,” Alfredo said.

Manuel Canelas, a political scientist and former minister in the Bolivian government, said CELAC, which was founded in 2010 to help Latin American and Caribbean governments coordinate their policies without the United States or Canada, was the only pan-regional integration body to have survived this period. .

However, Latin American left-wing presidents now face tougher global economic conditions, more complicated domestic politics with multiple coalition governments, and a lack of citizen enthusiasm for regional integration.

“Therefore, any steps towards integration will certainly be more cautious and should be focused directly on delivering results and demonstrating their usefulness,” Manuel added.

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Zera Carpenter

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