Experts do not see a viable single currency “El Sur” between Argentina and Brazil in the short term

The governments of Brazil and Argentina are working to create a single currency. This would be called “El Sur”, in honor of South America. However, the new currency would only be used for international tradeTherefore, the Argentine peso and the Brazilian real would be working within their country in parallel.

“Trying to align widely dispersed and different economies of which Brazil would pay a higher price than all the regional economies is not logical, although it could be convenient for Argentina. This is an attempt, from politics, to try to align economies to which all Latin American politicians will join,” said Julio Cesar Herrera, an economic and political analyst.

For his part, Andrés Pardo Amézquita, director of Macroeconomics for Latin America at XP Investment and former Vice Minister of Finance and Public Credit, “in order to reach a single currency it is important that countries meet certain basic conditions such as the level of economic integration, commercial, financial and banking, among others. Almost nothing or very little of that is currently fulfilled.”

“It would also be necessary to agree on certain criteria at the level of fiscal policy. Issues of similarities in economic models and policies are very important, and on this point, especially Argentina and Venezuela are far from the other countries in the region. The political instability that exists in each country is also a factor that plays against an initiative of this type”, mentioned Pardo Amézquita.

In addition, it considers that the starting point of the two countries they are proposing is very different, a characteristic that is evident in the levels of inflation, interest rates, debt levels, among others. There is a long way to go before the region is thinking about the possibility of adopting a single currency.

As confirmed by the Financial Times, the economic teams of both countries are close to the idea of ​​being able to develop a common currency to replace the peso and the real, something that is also closer due to the ideological similarity of both governments after coming to power. of the Workers’ Party in Brazil.

There will be a decision to start studying the necessary parameters for a common currency, which includes everything from fiscal issues to the size of the economy and the role of central banks,” Sergio Massa, Argentina’s economy minister, told the British newspaper. .

The measure that could boost the Argentine economy needs “a study of mechanisms for trade integration,” he added in statements to the Financial Times. “I don’t want to create false expectations, but it is the first step on a long road that Latin America must travel,” he said.

How do the currencies behave?

The behavior of the Argentine peso until January 20, 2023 had a last data of 183.44 against the dollar with a variability of 0.19%. This figure has also been the highest in 2023. At the end of 2022, its latest data is 176.7 with a variability of -0.02 percent.

Regarding the Brazilian real, its opening was 5.2074 with a variability of 0.08 percent. Its numbers against the dollar have had greater variability, being the lowest this year with a percentage of -2.35 percent.

Those who will doubt the measure the most are the authorities of the Brazilian Central Bank, especially due to the inflation registered by Argentina, which was close to 95% this year, in addition to the country’s inability to access international markets and the debt registered with private creditors and the International Monetary Fund (FMI).

What effects would the agreement have?

The idea of ​​”El Sur” arose due to the close economic relationship between the two countries, with Brazil being Argentina’s largest trading partner. Therefore, they intend to exclude the dollar in trade between these two nations and even any nation that wishes to join the Mercosur.

The measure that could boost the Argentine economy needs “a study of mechanisms for trade integration,” Massa added in statements to the FT. “I don’t want to create false expectations, but it is the first step on a long road that Latin America must travel,” said the Argentine economy minister.

The minister also assured that the initiative would not be limited to just two countries, but that other nations in the region that want to participate would be invited. If so, it could become an instrument similar to the euro and represent 5% of the world’s GDP.

Julio Cesar also highlighted how difficult it would be for governments to bring this to life. “To be able to do it, they would have to print tickets but they are not going to do it because they cannot fund the government and social spending. The Argentine economy, with its large deficit and its large debt, does not have the capacity to be an ally. Brazil has a much stronger economy and productive system. Economically it doesn’t make sense to take two economies that are so disparate and make them equal.”

What’s the idea?

According to the Financial Times, an official announcement is expected during President Luiz Inácio Lula da Silva’s visit to Argentina, which will begin this Sunday night for the Celac summit and which will represent the PT leader’s first trip abroad since took power at the beginning of the month.

For now, Brazil and Argentina will sign a bilateral agreement for the creation of a guarantee fund to stimulate Brazilian exports, a Brazilian government source said on Monday, as officials from both countries met for a summit in Buenos Aires.

Under the agreement, Argentina will have to provide collateral for Brazil’s trade financing with international liquidity, the source said, adding that South America’s two largest economies will also establish a working group to create a single clearing account in the continent.