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A common currency in South America?  This is what economists say

A common currency in South America? This is what economists say

Mohamed El-Erian, chief economic adviser to Allianz SE and columnist for Bloomberg Opinion, wrote on Twitter that the two largest economies in South America are not in a position to make the idea succeed given their current conditions and that the implementation of a common currency is “far from likely”.

John Barrearan economist at the Bank of England, said that a monetary union between the two countries would be “ambitious” and the former president of the central bank of Chile Jose De Gregory He said that Brazil would risk its sound monetary policy by pegging its currency to Argentina: “Dont have much sense”, he told Radio Infinita.

Olivier Blanchardformer chief economist at the International Monetary Fund, called the proposal “far-fetched”, while former US Treasury Secretary Larry Summers called it “highly problematic given differences in economies”.

Brazil Y Argentina seek to resume discussions on the formation of a common currency for financial and commercial transactions, Presidents Luiz Inácio Lula da Silva and Alberto Fernández wrote on Sunday in a joint article published in a local newspaper ahead of a regional summit to be held in Buenos Aires this week.

See also:

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

Although the proposal aims to boost regional trade and the integration of neighboring countries, it faces numerous political and economic obstacles before becoming a reality. Similar attempts in past decades failed to gain momentum amid macroeconomic instability and changes in government.

The annual inflation of Argentina nearly 100% compared to 5.8% for Brazil and the rapid depreciation of the peso in recent years are an immediate challenge to the idea of ​​a common currency, among other obstacles.

What Bloomberg Economics says:

The idea of ​​a single South American currency, or even just one for Brazil and Argentina, lacks merit and comes at a bad time. The region does not have what it takes to justify and sustain a single currency: there is no labor or capital mobility, there are price and wage rigidities in various countries, economic cycles are not synchronous, and most of the countries in the region do not have the fiscal margin to face the fiscal transfers that this type of mechanism demands”.

— Adriana Dupita, economist for Brazil and Argentina

Although it is difficult to imagine a unified Argentine-Brazilian currency in the short term, the idea triggered a cascade of different comments on social networks. Brian Armstrongexecutive director of Coinbase Global Inc.a publicly traded crypto exchange, suggested that South American countries should embrace bitcoin for the long term.

Source: Gestion

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