A New Shared Currency Greets South America

By: Taylor Standring—Correspondent

The two biggest economies in South America, Brazil and Argentina, are in early talks to establish a shared unit of currency. 

Brazil and Argentina are suffering from a series of economic challenges. In both countries, a lack of dollars struggles to replenish foreign currency reserves and inflation has doubled in the past year, creating a barrier in the path to success. President of Brazil, Luiz Inacio da Silva, and President of Argentina, Alberto Fernández, think that a possible fix to these issues could be a shared currency that is aimed to boost bilateral trade and chip away at the dominance of the U.S. dollar. Similar to the Euro, the long-term vision would be to allow other South American nations to unite and use the joint currency. 

Lula visited Argentina for the first time since he took office at the start of this year. In a press conference in Buenos Aires, Lula discussed that establishing a shared currency for trade would decrease the reliance on the American dollar, whose sudden climb last year hurt many countries. “If it depended on me, we would have external commerce always in the same currency of the other countries so we wouldn’t have to depend on the dollar,” Lula said.

The presidents wrote in a joint statement to an Argentinian Paper that they desire greater integration between their two neighboring countries in hopes to resolve issues that foreign currency is causing. “We decided to move forward with discussions about a common South American currency that could be used for financial and commercial flows, reducing operating costs and our external vulnerability,” they said.

Argentina’s shortfall of US dollars is weighing on the trade between the two countries, and it is clear that change needs to be made, but that doesn’t mean the Brazilian Real and the Argentine Peso are on their way out. 

Brazil’s Finance Minister Fernando Haddad downplayed the idea of this new currency stressing that it is just one option on a table of possible solutions. “The adoption of a common currency is not designed to replace the Brazilian real and the Argentine peso,” said Haddad. 

“Trade is really bad and the problem is precisely the foreign currency. So we are trying to find a solution, something in common that could make commerce grow,” he added.

Lula pledged to hold a closer relationship with Argentina after former Brazilian president Jair Bolsonaro distanced himself from them. Talk of creating a common currency has periodically sprung up since its founding in 1991. “Conversations were now reemerging because Lula is more politically aligned with Fernández than his predecessor, Jair Bolsonaro,” said Win Thin, global head of market strategy at Brown Brothers Harriman.

The details of this report are sparse but it is sure that the Brazilian real and Argentine peso would continue to exist, with the new tender focused on trade. “The currency has no name or deadline yet but would not seek euro-style monetary unification,” Haddad said.

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