On January 21, 2023, Argentina and Brazil announced tentative plans to establish a common currency. Brazilian President Luiz Inacio “Lula” da Silva and Argentinian President Alberto Fernández wrote a joint piece published in Argentinian paper Perfil floating the idea of a currency project along with other measures to bolster regional integration.
Initially, the currency project would run in tandem with Argentina’s and Brazil’s respective currencies, the peso and the real. This project is designed to amplify trade opportunities among South American countries and reduce dependence on the US dollar.
In realizing this project, Brazil and Argentina would establish the second largest currency bloc on the planet. This new currency, which Brazil has offered to call “Sur” (south), would eventually be extended to other Latin American nations.
Argentina’s economy minister Sergio Massa gave a brief outline of what this project would entail:
“There will be . . . a decision to start studying the parameters needed for a common currency, which includes everything from fiscal issues to the size of the economy and the role of central banks. It would be a study of mechanisms for trade integration. I don’t want to create any false expectations . . . it’s the first step on a long road which Latin America must travel.”
“It is Argentina and Brazil inviting the rest of the region,” Massa stated. Per FT projections, a currency union spanning Latin America would make up a total of 5% of global GDP.
A currency union between Argentina and Brazil would not be forged overnight. Massa even noted that it took Europe 35 years to establish the euro.
Given that the two Latin American countries have left-wing leaders —Fernández in Argentina’s case and Luiz Inacio “Lula” da Silva in Brazil’s case — there is a much stronger push for a common currency project.
Argentina and Brazil are the key pillars of the Mercosur trade bloc, which also features countries such as Paraguay and Uruguay. A common currency has major appeal for countries such as Argentina, which is experiencing an inflation rate that’s close to triple digits, with the INDEC national statistics bureau estimating that inflation stands at 94.8%.
In terms of integration bodies that foster cooperation among Latin American nations, other projects such as the Community of Latin American and Caribbean States (CELAC) have gotten the ball rolling. CELAC’s main aim is to integrate policy between Latin American and Caribbean nations without the US or Canada’s tutelage. Mercosur and CELAC have been the only multinational, Latin-American based institutions to survive over a decade.
There will be obvious challenges for currency integration due to the deteriorating economic situation at the global level in addition to Latin America’s perennially unstable domestic politics. With these factors in consideration, a common currency project will take time to become a reality.
As the world grows more multipolar there will be increased incentives for countries to build parallel, multi-lateral institution that act independent of the Collective West. Moreover, countries like Argentina and Brazil — who have historically pursued independent foreign policies — will use this environment to court all sides of the geopolitical aisle.
Even if this Argentinian-Brazilian currency project fails, there will still be momentum towards more cooperation among Latin American nations. Moreover, there will be increased incentives for Latin American countries to act independently of the United States and even court China and Russia.
The Sur currency project is just the latest sign that Latin America’s most prominent economies are ready to think outside the box and wean themselves of American influence. Whether or not this currency project turns out to be successful remains to be seen.