Common Currencies have always provoked debate and discussion between leaders of nations, who want to promote greater co-operation whilst also defending their own economic interests. After the Euro was made the official currency for twelve EU countries in 1999 (and now twenty), efficiency and economic stability increased within the eurozone, demonstrating its success and influencing the global economy. Not only does the single currency highlight European identity, but investment in the eurozone became cheaper with a lower risk and greater confidence, promoting trade alongside business. Therefore, keeping all these benefits in mind, Brazil and Argentina have recently proposed a new common currency for their nations; one which would ultimately become the second largest currency bloc after the Euro. However, the two left-wing presidents’ idea has created economic concerns over whether the “Sur” (the proposed common currency) will actually be as beneficial as they intend it to be.
Both nations argue that the “Sur” will boost regional trade and enhance co-operation to formulate an improved economic bond. Their trade has significantly increased from 2021; now up by 21%, showing their determination for an internationally competitive trading bloc. Their proposed currency will reduce dependence on the US dollar (important especially in face of a recession or financial crisis) and could encourage the neighbouring Latin America to join as well.
However, the volatility that Argentina’s economic history has demonstrated is a worry for think-tanks such as the IMF, and Brazil too, due to its high debt (owes $40bn to IMF from 2018) and general instability. Its definite advantages in agriculture and fertile land do allow for a high volume of exports, boosting its GDP. Yet its consistent devaluation of the Argentine Peso (current currency) in the last 5 years may negatively affect Brazil if the “Sur” does indeed become official. Furthermore, current inflation in Argentina is approximately 95% – a stark contrast to Brazil’s 5%. A chief economist at Oxford Economics stated that “Argentina has more inflation in a single month than Brazil has in a year”. These figures emphasise the lack of value a common currency could bring to Brazil’s more-manageable economy. So then why would Brazil even consider such an idea with a country with deteriorating conditions?
We could argue that Brazil’s agenda isn’t economic, but rather political. A single currency between the two nations could highlight a level of unity and integration in Latin America that would be geopolitically enhancing. It could also allow Lula da Silva’s support-base, which has been quite volatile after his re-election, to achieve a more stable position as he tries to prove himself to be a historical President. Nevertheless, the detrimental impacts that Brazil could face with a bilateral agreement with Argentina are too large not to consider. Argentina will certainly benefit and help ease its soaring inflation by boosting its regional trade and hence GDP, but it may come at the cost of its neighbour, Brazil. Hence, political arguments that Lula brings to the table to justify his reasoning should not be considered in isolation.
Despite these arguments, we mustn’t forget how long the Euro took to fully come into play – thirty-five years of discussions and ideas. Hence, Brazil and Argentina’s proposal is still a suggestion that requires much more deliberate thought and acceptance from both nations on macroeconomic policy. One must keep in mind that a single currency creates a highly dependant relationship that may not be wholly beneficial, as we saw during the Eurozone Crisis in 2009. But the consideration of this unity does show two growing geopolitical powers that want to mark their global economic sovereignty to a greater extent. Even though these talks are simply just talks right now, it is the first step in the process to perhaps devise a new and powerful currency: The Sur.
