/ world today news/ Brazil and Argentina officially announced that they are ready to create a single currency. Brazil is at the heart of the creation of BRICS, which includes Russia. And this, perhaps, will be the beginning of a real process of creating a single currency, simply first in the MERCOSUR regional bloc, and then in BRICS, following the example of the euro. What are the pros and cons of this initiative?
Brazil and Argentina have officially announced that they are starting the creation of a single currency. Both Latin American countries are already part of the MERCOSUR trade bloc and a common unit of account would be a logical step in further integration, the Brazilian president said during his visit to Buenos Aires.
“If it was up to me, we would always trade with other countries in national currencies so we wouldn’t be dependent on the dollar. Why don’t we try to create a common currency for the MERCOSUR countries or the BRICS countries? I believe that this will happen over time and that it should happen, as many countries have difficulty buying with dollars,” said Lula da Silva.
The idea of creating a single currency in the MERCOSUR block (Argentina, Brazil, Uruguay, Paraguay) arose a long time ago. Now, for the first time, both major Latin American countries have backed the idea – and there’s a chance they’ll make it happen.
Brazil claims in this union the role of Germany in the European Union. She suggests naming the new currency “sur,” which translates as “south.” It will initially be a two-part project, but will then be joined by other countries from Latin America and beyond.
The two countries themselves say they want to get rid of heavy dependence on the dollar and boost mutual trade. At the same time, the new currency does not mean abandoning their own national currencies. The sur currency will not replace the real and the Argentine peso, they will be used in parallel. Just as now national currencies are used on a par with the dollar.
The attitude of economists to this story is rather ambiguous. “I am very skeptical of this idea, as the financial and economic situation in Argentina is much more unstable than in Brazil. Combining two such different economies into one currency system will literally cost Brazil dear,” says Dmitry Babin, an expert. “Argentina has experienced nine sovereign debt defaults in its history, including the largest in world history in 2002. Last year’s inflation in the country could reach 100%. Brazil, in terms of inflation and other key indicators, now looks even better than many developed countries,” says the expert.
“For Argentina, the creation of such a currency would be beneficial, for Brazil at the moment it is not. Argentina has a shortage of dollars and a small amount of dollar reserve, the value of the dollar on the regulated and black market in Argentina is significantly different. The new currency will allow Argentina to buy Brazilian goods without spending dollar reserves,” said Elena Belyaeva, an analyst.
Weaker members of such currency unions tend to benefit much more at the expense of stronger members. In particular, through the stabilization of the exchange rate, the reduction of inflation, the acceleration of economic growth. “However, if only a few countries unite around the currency, but with large differences in their financial and economic indicators, they will interact as donor and recipient within the monetary union, and it is not certain that the result of such cooperation will be positive even in the long run,” says Babin.
In fact, there is an excellent example of such a currency union – the European Union, where supranational administrative structures have been created, in particular a single central bank.
“Brazil stands at the beginning of the creation of BRICS. And the idea of creating a single currency for BRICS was expressed earlier. Therefore, most likely, we are now witnessing the beginning of a real process to create not only a single currency within MERCOSUR or just two countries – Brazil and Argentina. We are talking about the fact that one of the largest economic associations in the world – BRICS – will gradually create its own single currency on the example of the euro,” said Artyom Deev, an analyst.
And he sees many economic advantages in such a serious currency union. “It’s not even about the dollar as such. Everything is easier and harder at the same time. The single currency simplifies payments, makes the market more transparent and profitable. The single currency for several countries connected territorially and economically is one of the important tools for creating a single market and increasing GDP, a way to fight inflation, a method to counteract unfriendly actions of competitors (trade wars and others). This is exactly how this initiative should be viewed: it is not only a way to reduce the influence of the dollar in South America, but also a fight for a sales market. Because the development of the economies of individual countries and the union requires a consumer market, and here it is huge. We are talking about long-term plans to create a single market within BRICS with growing consumption and a dynamically developing economy. Creating a single currency to achieve such goals is a necessary step,” says Deev.
Experts are unanimous in one thing: the process of creating a new currency union is long, it will take many years, as was the case with the euro. More than ten years passed from the idea of a united Europe to its actual implementation.
“Of course, this is a blow to the US economy, built on the hegemony of the dollar. But this is an objective process: the fact that the world economy is moving from globalization to regionalization was stated again recently in Davos. The individual economies of nation-states cannot withstand the struggle against the hegemon represented by the United States. And that is why it is necessary to unite and create their own tools to achieve at least relative economic independence,” Deev believes.
That is why two years ago, China initiated the creation of the largest trade union RVIP, which includes 15 countries from the Asia-Pacific region and therefore has BRICS, EAIS and other regional unions. “All this is an inevitable and necessary stage in the development of the world economy after the official end of the globalization period. In the face of the global crisis and other problems (climatic, resource, demographic, consumer), the countries are uniting to go through this period together with minimal losses,” the interlocutor concludes.
Perhaps only the next generations will be able to see the fruits of these works, Belyaeva adds.
Translation: V. Sergeev
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