Nobel Laureate Paul Krugman Says Argentina, Brazil’s Joint Currency Is a Terrible Idea

Bloomberg — Nobel-Prize-winning economist Paul Krugman said the proposed currency union between Argentina and Brazil is a “terrible idea” dreamed up by someone with a limited understanding of economics, adding to public criticism of the plan both country’s leaders are pushing.

“A shared currency may make sense between economies that are each other’s major trading partners and are similar enough that they won’t face large asymmetrical shocks,” Krugman said in a Twitter thread Sunday.

Despite being neighbors and trading partners, Brazil sends only 4.2% of its exports to Argentina, while Argentina’s exports to Brazil are 15%, Krugman said.

He also pointed out the countries’ trading structures differ greatly, with Argentine exports being basically all agriculture, and more than half of Brazil’s being manufactured goods or fuel. “So shocks to the world economy likely to cause big changes in equilibrium real exchange rate,” Krugman wrote.

Recently elected Brazil President Luiz Inacio Lula da Silva and his Argentine counterpart, Alberto Fernandez, announced their intentions to discuss a “common South American currency” in an open letter published in an Argentine newspaper last weekend.

VIEW +

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

The unit would be used “for financial and commercial trade, in order to reduce operational costs and lower our external vulnerability” to the dollar, they wrote.

The announcement came amid a summit of the Community of Latin American and Caribbean States. There, finance ministers of both countries clarified they are thinking of “common means of payment” that would not replace their own domestic currencies.

Read more on Bloomberg.com