Brazil & Argentina to begin run for shared currency

Brazil and Argentina are set to announce their intention to begin preparatory work on a common currency at a summit in Buenos Aires this week. The move, which could eventually create the world’s second-largest currency bloc, will be discussed by the two nations, who are the largest economies in South America.

The initial focus of the plan will be on how a new currency, which Brazil suggests calling the “sur” (south), could boost regional trade and reduce reliance on the US dollar, according to officials.

The new currency would initially run in parallel with the Brazilian real and Argentine peso, and be offered to other nations in Latin America, should the bilateral project prove successful. A currency union that covered all of Latin America would represent around 5% of global GDP, according to estimates by the Financial Times. This would make it the world’s largest currency union after the euro, which encompasses around 14% of global GDP when measured in dollar terms.

The project is expected to take many years to come to fruition, similar to the 35 years it took Europe to create the euro. An official announcement is expected during Brazilian President Luiz Inácio Lula da Silva’s visit to Argentina, which starts on Sunday night. This will be the veteran leftist’s first foreign trip since taking power on January 1st.

Brazil and Argentina have discussed a common currency in the past few years but talks foundered on the opposition of Brazil’s central bank to the idea, one official close to the discussions said. However, now that the two countries are both governed by left-wing leaders, there is greater political backing for the initiative.

Trade between the two nations is flourishing, reaching $26.4bn in the first 11 months of last year, up nearly 21% on the same period in 2021. The two nations are the driving force behind the Mercosur regional trade bloc, which includes Paraguay and Uruguay.