Argentine President Alberto Fernandez (right) and Brazilian President Luiz Inacio Lula da Silva (left) greet each other after signing a series of agreements during a press conference in Buenos Aires.
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Argentina and Brazil, the two largest economies in South America, are soon in talks to create a common currency, as part of a concerted effort to reduce dependence on the US dollar.
But some analysts are highly skeptical, calling the proposal “falling out of the sky” because of the divergence between the two economies and the rapidly changing political winds in the region.
Brazilian President Luiz Inacio Lula da Silva said: “Our finance ministers, each with their own economic group, can make proposals on foreign trade and transactions between the two countries are done in the currency. shared”. Aires, Argentina, according to Reuters.
Speaking on his first international visit since taking office, Lula said that the currency would initially be designed for trade and commerce between Brazil and Argentina. It could then be accepted by members of Mercosur – South America’s major trading bloc.
Brazilian Finance Minister Fernando Haddad said that the adoption of the common currency is not intended to replace the Brazilian real and the Argentine peso. He report added that the currency has no name or term, nor will countries seek euro-style monetary unity.
Jimena Blanco, head of the Americas risk consulting firm Verisk Maplecroft, described the talks as a “flamboyant” announcement designed “to draw massive attention to a regional summit unimportant area”.
“Three decades after its founding, MERCOSUR has yet to deliver on its primary goal of commercial integration for its four founding members,” Blanco told CNBC via email. “The development and implementation of a common currency of South America, therefore, is a piece of cake in the sky.”
“Neither Argentina nor Brazil enjoy the economic or political conditions necessary to embark on such a fundamental change, which would take decades to effectively implement,” Blanco said.
“We hope ‘Sur’ will share the same fate as the Andino Peso, which has never been successful, or the Sucre, the digital payment currency used by Venezuela and other countries with a zero ideology. more than symbolic value and has failed to downplay the importance of the US dollar in regional trade,” she added.
exploratory talk
Argentina’s President Alberto Fernandez said that, while it was still unclear how the single currency in the region would work, Lula and he had agreed that relying on foreign currencies for trade was harmful.
Mario Marconini, chief executive officer of consulting firm Teneo, told CNBC via email: “It’s hard to believe Argentina and Brazil will actually go in this direction given the differences in the two economies at the current stage.
Marconini emphasized that it took European countries decades to get to the point where member states felt ready to move forward with a single currency, and that this process came after a period of sustained coordination and a level of commitment. relatively high degree of coherence in macroeconomic policy.
Brazilian Finance Minister Fernando Haddad (2nd from left) and Argentine Economy Minister Sergio Massa (2nd from right) sign a joint agreement.
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He added that Lula is “diplomatic” so as not to contradict Argentina’s Economy Minister Sergio Massa, who has spoken of the two countries working towards a common currency.
“However, Lula has not committed to anything other than initial exploratory talks on bilateral currency issues,” Marconini said.
“Lula’s willingness to play in such a way reflects more than his government’s desire to resume good relations with Argentina. [and Latin America] rather than anything concrete about how to move forward on an issue that doesn’t make economic sense at the moment.”
