By Carter Roos, Staff Writer
With recent issues emerging in the South American economy, Argentina and Brazil have started discussing an economic partnership, including the creation of a new common currency.
This discussion emerges during continuing talks surrounding an agreement to boost bilateral trade in the two countries. After the region’s recent issues keeping foreign currencies in circulation, as well as mounting inflation issues, this economic agreement was seen as a way to stabilize the region’s economy.
Argentina in particularhas looked to a new common currency to combat inflation rates, which reached nearly 100% last year.
They also look to provide an alternative to the foreign currencies commonly used in the region, which have become increasingly difficult to circulate.
While the primary goal of the potential “common South American currency” is to control inflation and reduce the reliance on foreign currency, it is also expected to be combined with other methods to protect the two countries from their economic dependence on each other.
While few details are known about the countries’ plan for the new currency, many have voiced concerns that the introduction of a more versatile currency will devalue the existing currencies — the Argentine peso and the Brazilian real.
President of Brazil Luiz Inácio Lula da Silva and the Brazilian Finance Minister Fernando Haddad have stated that it will not in any way replace either country’s existing currency or devalue it.
Recent talks about the economic plan began in Buenos Aires.
As Haddad arrived he told reporters, “Trade is really bad, and the problem is precisely the foreign currency, right? So we are trying to find a solution, something in common that could make commerce grow.”
Haddad also identified the lack of foreign currency as one reason trade had faltered between the two countries.
Haddad also published an article last year introducing the idea of a common currency as a possible solution to patch the economic disconnect between the two countries.
The continued discussions of mutual financial support have been further supported by Lula, who has promised to be closer with Argentinian leadership than former Brazilian president Jair Bolsonaro.
According to both presidents, there is little decided about the currency at the moment; however, Haddad has promised that there will be more details moving forward in order to assure the public that the new plan will maintain the value of the countries’ respective currencies.
While there are no certain plans regarding the currency between the two yet, Brazil is the top destination for Argentine exports, amounting to over $12 billion a year. The Academic Director of the Brazilian Center for Diplomatic Relations Feliciano de Sá Guimaraes, also identified Argentina as the “most important country in our diplomatic relations,” so it is likely the two will be eager to solidify their economic partnership.
As the deal currently stands, Argentina will be obligated to provide a collateral guarantee for Brazil’s trade financing. The two will also mutually create a fund designed to stimulate Brazilian exports.
The two countries will also form a committee intended to study the creation and impact of a potential common currency and evaluate the validity of the currency as well as the potential impact on civil trade and the value of existing currencies.throughout the week.
“I’m surprised by idea of a common currency for Brazil and Argentina. This seems highly problematic given the differences in economies,” Harvard Professor and former Treasury Secretary Lawrence Summers said on Twitter on Jan. 23.