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Argentina and Brazil would announce tomorrow the project of a common currency called “South”

Argentina and Brazil would announce tomorrow the project of a common currency called “South”

One of the most important announcements from tomorrow’s meeting between the Argentine president, Alberto Fernandez, and his pair from Brazil, Luiz Inácio “Lula” da Silvawill be the beginning of the process of creating a common currency between both countries, tentatively called “South”.

“There will be a decision to start studying the necessary parameters for a common currency, which includes everything from fiscal issues to the size of economies and the role of central banks”told Sergio Massa, Argentine Minister of Economy, to the British newspaper Financial Times, which dedicated the front page of its Sunday online edition to the issue.

“It would be a study of integration mechanisms. I don’t want to create false expectations… it’s the first step on a long road.” added.

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South, inflation and after

The “South” currency would initially function in parallel with the existence of the Argentine peso and the Brazilian real, in order to stimulate regional trade and reduce the use of and dependence on the dollar. In addition, Massa told the British media that, although it is a bilateral initiative, it will be offered to other nations in the region.

In this regard, the Financial Times adds that a monetary union that would cover all of Latin America would represent close to 5% of global trade and that the “South” would be the second largest common currency, behind the euro, which covers 14% of world GDP.

Massa himself recalled that it took Europe 35 years to reach the euro.

In 2022, bilateral trade between the Argentina Y Brazil rose 21%, says the Financial Times, while noting that the attractiveness of a common currency “it is more obvious for Argentina, where inflation approaches 100% while the Central Bank prints money to finance spending”.

In fact, remember, since Alberto Fernández took office, the amount of money in circulation has quadrupled and the highest denomination bill is worth less than 3 dollars if the “widely used” parallel exchange rate is taken into account.

READ ALSO: A look at Latin America: How to overcome global risks and come out stronger?

contrast and background

Argentina’s enthusiasm for the common currency contrasts with Brazil’s reluctance to tie itself to a “perennially volatile neighbor” that has had no access to international credit since the 2020 default and owes the IMF more than US$ 40,000 million of the financial bailout of 2018.

Unlike in 2019, when Macri and Bolsonaro were enthusiastic about the idea of ​​creating the “real weight”, a project supported by the then Argentine Finance Minister Nicolás Dujovne, now, at least on the Argentine side, the project could have support from the opposition. .

In fact, in September 2022 the Mercosur Commission of Congress invited Dujovne, who confirmed that he had supported the idea of ​​a common currency with Brazil.

Fabio Giambagi, an official of the National Bank for Economic and Social Development (Bndes), was invited to this meeting, who recalled the various and failed attempts in this direction and challenged the Argentine congressmen that Brazil 30 years ago, since the application of the “Real Plan ” of the then minister and later president Fernando Henrique Cardoso, managed to stabilize his currency and get off the inflationary merry-go-round.

It should be remembered that Bolsonaro and Macri proposed at the time the creation of the “real peso”, an idea that was rejected by the Central Bank of Brazil.

The Argentine government is now betting on the Bndes to finance the second stage of the “President Néstor Kirchner Gas Pipeline”, which would allow the export of Vaca Muerta gas to Brazil, a common interest of both countries, given the decline in Bolivian gas production, which export to both countries. Such is the second announcement that Alberto Fernández and Lula could make tomorrow.

Source: Gestion

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