Argentina and Brazil are working on the creation of a single currency between the two countries. The official announcement could come as early as the next few days.
According to the Financial Times, the project may be announced on the sidelines of the CELAC summit. Namely, the community of 33 Latin American and Caribbean states, to be held in Buenos Aires.
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Common currency between Argentina and Brazil
Argentina and Brazil are the two large countries in South America, both geographically, demographically, and economically. And, between the two countries, during 2022, there was more than $26 billion in trade, up 21 percent from the previous year.
With this basis, given the heavy reliance on the dollar and the euro for major trade, it is not surprising that the two countries have embarked on the path of an albeit partial “monetary union.”
A single currency between the two countries has two major goals. Firstly, to strengthen trade between the two countries. And in this sense, the European union serves as a prosperous and positive example for such a strategy.
And second, to reduce dependence on the U.S. dollar. Which is currently the main currency used by the two countries for international trade.
The new common currency
The new common currency, Argentine Economy Minister Sergio Massa pointed out, will travel parallel to the national currencies of Argentina and Brazil. Similarly to what happened in the early 2000s in the United Kingdom with the introduction of the Euro.
Massa also said that, the road to introducing this new currency is still in its infancy. And that in-depth analyses and appropriate evaluations will be needed. This is aimed at defining the necessary parameters for the new currency. So as not to cause problems on the fiscal side or to the role of banks.
In his speech, the Argentine minister stressed that, the project, at present, is not that of a common South American currency. But only a common currency between Argentina and Brazil. However, in the future, other South American nations could also join the project.
South American economic framework
Latin America, by geographic and demographic extent, represents one of the largest economic areas in the world. And the possibility of a single currency extended to all of Latin America could create the second largest monetary area in the world after the Eurozone.
In fact, if this new currency were to be extended to the entire South American area, including the Caribbean islands. That is, if it were to become the single currency of the Community of Latin American and Caribbean States (CELAC) it would cover 5 percent of global GDP. This is an extremely important value considering that the Eurozone covers 14 percent of global GDP.
This scenario, as desirable as it may be for the governments of Brazil and Argentina, is not feasible in the short term.
In fact, the minister recalled that the European Union, despite resting on a series of economic treaties between states, took about 35 years to arrive at the Euro. A similar project for Latin America, would require much more work and definitely a lot of time.