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ECONOMY | 23-01-2023 21:49

Brazil, Argentina eye common unit for trade, not a single currency

Brazilian finance minister says plan is to introduce a common unit to settle trading operations between the two countries without relying on the dollar.

Brazil and Argentina are planning to launch a common unit of account to promote their bilateral trade rather than a single currency to replace the real and the peso, according to Brazilian Finance Minister Fernando Haddad. 

Haddad’s comments on Monday seek to dispel controversy after the presidents of Brazil and Argentina published an op-ed saying they were renewing discussions about a common currency for financial and commercial transactions. 

The idea was greeted with scepticism by top economists, who pointed at the lack of policy coordination and wide inflation differentials between South America’s two largest economies as key obstacles.

Haddad said the plan is to introduce a common unit to settle trading operations between the two countries without relying on the dollar.

“We need to see how we’ll do it, but the idea is that we may have a common means of payment between both countries,” Haddad told reporters in Buenos Aires, where he is accompanying Brazilian President Luiz Inácio Lula da Silva in a regional summit. “We’re talking about a system that’s not based on local-currency payments, which didn’t work, but that won’t reach the level of monetary unification seen with the euro.”

Argentina’s Economy Minister Sergio Massa echoed Haddad’s comments, saying both countries were discussing a common, not a single currency.

Brazil and Argentina have for decades considered options to coordinate their currencies, often as a political project to counter the influence of the dollar in the region and to boost bilateral trade. Persistent macroeconomic imbalances, together with political obstacles, has all but blocked progress of the idea.

Argentina’s annual inflation of almost 100 percent compared to Brazil’s 5.8 percent and the fast depreciation of the peso in recent years are an immediate challenge to plans for a common currency.

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