The euro should serve as a model
Brazil and Argentina are considering monetary union
01/22/2023 8:53 p.m
Brazil’s new Prime Minister Lula is making his first trip abroad to neighboring Argentina. A mammoth project is to be announced there: a common currency for both countries based on the euro. There is already a name.
According to the Financial Times (FT), Brazil and Argentina will announce the start of preparatory work for a common currency in the next few days. The newspaper reported this, citing government officials from the two South American countries. The plan is to be discussed at a summit meeting in the Argentine capital, Buenos Aires, next week. Discussions were being held on how the new currency could increase trade in the region and reduce dependence on the US dollar.
Brazil wants to call the new currency “sur” (south). Argentina’s economy minister, Sergio Massa, told the FT there would be a decision to examine the necessary parameters for a common currency. It will be about the size of the national economy, financial issues and the role of the central banks.
Inflation in Argentina near 100 percent
The idea was already discussed in both countries in 2019. At that time, however, the Brazilian central bank had reservations. According to FT, the currency area – similar to the euro in Europe – could later be expanded to include other Latin American countries. Initially, however, only the Argentine peso and the Brazilian real would be included in the new currency. The benefits of a new common currency are most evident in Argentina, where annual inflation is approaching 100 percent.
A monetary union encompassing all of Latin America would account for about 5 percent of global GDP, the FT estimates. The world’s largest currency union, the euro, accounts for about 14 percent of global GDP measured in dollars.
Argentina’s Economy Minister Massa pointed out that it took Europe 35 years to create the euro. An official announcement is expected during Brazilian President Luiz Inácio Lula da Silva’s visit to Argentina, which begins this Sunday evening. It is the new head of government’s first trip abroad since he took power on January 1st.