Economists Play Down South America’s Common Currency Idea

Brazil and Argentina are seeking to renew discussions on forming a common currency for financial and commercial transactions

Luiz Inacio Lula da Silva and Alberto Fernandez, smile during a Day of Democracy and Human Rights event in Buenos Aires, Argentina, on Friday, Dec. 10, 2021.
By Juan Pablo Spinetto
January 23, 2023 | 02:42 PM

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Bloomberg — Top economists dismissed the creation of a common currency by Argentina and Brazil, saying the idea floated by the presidents of both countries on Sunday faces too many practical obstacles for it to become reality.

Mohamed El-Erian, chief economic adviser at Allianz SE and Bloomberg Opinion columnist, wrote on Twitter that South America’s two largest economies are in no position to make the idea succeed given their current conditions, and that the implementation of a common currency is “far from probable.”

John Barrdear, an economist at the Bank of England, said a currency union between both countries would be “ambitious,” and Chile’s former central bank President Jose De Gregorio said Brazil would risk its sound monetary policy by linking its currency to Argentina: “It doesn’t make much sense,” he told Radio Infinita.

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Olivier Blanchard, a former International Monetary Fund chief economist, called the proposal “insane” while former US Treasury Secretary Larry Summers labeled it “highly problematic given the differences in the economies.”

Brazil and Argentina are seeking to renew discussions on forming a common currency for financial and commercial transactions, Presidents Luiz Inacio Lula da Silva and Alberto Fernandez wrote in a joint article in a local newspaper on Sunday ahead of a regional summit taking place in Buenos Aires this week.

While the proposal aims to boost regional trade and integration of the neighboring countries, it faces numerous political and economic hurdles before becoming reality. Similar attempts in past decades failed to gather steam amid macroeconomic instability and government changes.

Argentina’s annual inflation of almost 100% compared to Brazil’s 5.8% and the fast depreciation of the peso in recent years are an immediate challenge to the idea of a common currency, among other different obstacles.

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What Bloomberg Economics Says:

“The idea of a single South American currency — or even one only for Brazil and Argentina — lacks in merit and has a poor timing. The region does not have what it takes to justify and sustain a single currency: there’s no labor and capital mobility, there’s price and wages rigidities in several countries, the business cycles are not synchronous, and most of the countries in the region do not have the fiscal space to afford the fiscal transfers that this kind of mechanism demands.” — Adriana Dupita, Brazil and Argentina economist

Even if it’s hard to see a unified Argentina-Brazil currency any time soon, the idea still triggered a cascade of different comments on social media. Brian Armstrong, chief executive officer of Coinbase Global Inc., a publicly traded crypto exchange, suggested the South American countries should instead adopt Bitcoin in the long term.

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