South America mulling its own ‘euro’

Two of South America’s biggest economies, Argentina and Brazil, are in talks to launch common currency

| Updated: 02 February, 2023 8:58 pm IST

Brazil President Luiz Inácio Lula da Silva and Argentine President Alberto Fernandez

Argentina’s President Alberto Fernández and Brazil’s President Luiz Inácio Lula da Silva recently announced the launch of a common currency to be circulated and functional between the two neighbours.

The initiative, seen as similar to Europe’s euro, can have a significant impact on South America. Significantly, the launch of a single currency is expected to reduce dependency on the American dollar as well as the Euro.

In an opinion piece in the Argentinian newspaper Perfil, the two Presidents of South America’s biggest economies argued they wanted to integrate the economies of two neighbouring countries.

A common currency would pave the way for alternative reserves and once the common currency is implemented, the bilateral trade between Argentina and Brazil will be easy and hassle-free. Brazil is Argentina’s largest trading partner.

Argentina will seize the opportunity to repair its economy and economic turmoil at a time when the country’s annual inflation rate is nearly 100 percent. The Latin American nation of about 46 million is facing a financial crunch, where the central bank of Argentina prints money to fund its spending.

The two largest economies in South America may eventually ask the other Latin American nations to join in the currency block.

While the idea of launching a common currency was discussed previously, it never took shape. The chances are high now that both countries are led by left-leaning parties.

According to some experts, the plan to launch a single currency previously failed due to opposition from the Central Bank of Brazil.

Following a meeting with Argentina’s former President Mauricio Macri in Buenos Aires, ex-President of Brazil Jair Bolsonaro said the two countries were taking the initiative to launch a single currency for the Mercosur area.

Brazil and Argentina, both Latin American countries, are members of the Mercosur trade group, along with Paraguay and Uruguay.