At the beginning of last month, President Luiz Inácio Lula da Silva, on his first international trip, returned to the idea of ​​creating a Common Currency between Argentina and Brazil. The subject has been raised for years, but has never been taken forward. Now, the representatives of the two South American countries show a predisposition to make the idea come to life.

“It is interesting to note that, on Lula’s first visit to Argentina as president, still in his first term in 2003, his conversations with the then Argentine president Eduardo Duhalde also touched on the creation of a common currency for commercial transactions between the countries of the Mercosur. In this sense, the existence of this debate between the countries of the bloc is nothing new”, recalls Tiago Soares Nogara, doctoral candidate in Political Science at the Faculty of Philosophy, Letters and Human Sciences at USP.

The proposal is the implementation of a common currency between the two countries, in order to reduce dependence on the dollar. Thus, it would be possible to carry out commercial and financial transactions in a monetary unit not backed by the dollar, but which was neither the peso nor the real. Doubts even arose about what exactly this currency would be, treated by some as the “Latin euro”. Called sur, it is a digital currency that should not replace the currencies of countries. Unlike the euro, each country can choose and implement it completely, being used by citizens and tourists in everyday transactions, or just using it in international trade.

In an April 2022 article for Folha de S. Paulo – months before the presidential elections –, Fernando Haddad, current Minister of Finance, and Gabriel Galípolo, executive secretary of the portfolio, explained how this common currency would work, not only between Brazil and Argentina, but for Mercosur . “An integration project that strengthens South America , increases trade and combined investment is capable of forming an economic bloc with greater relevance in the global economy and granting greater freedom to the democratic desire, the definition of the economic destiny of the bloc’s participants and to the expansion of monetary sovereignty,” they wrote.

The idea of ​​Haddad and Galípolo is that the currency be issued by a South American Central Bank and that the initial capitalization be made by the countries of the region, with greater participation in regional trade. The economy of member countries would also have to be matched, says the article. For both, what would work would be a compensation system between countries, in order to reduce inequalities between deficit and surplus countries. They cite resources, but do not specify where they would come from.

They also say that “the beginning of a process of monetary integration in the region is capable of inserting a new dynamic in the consolidation of the economic bloc, by offering countries the advantages of access and shared management of a currency with greater liquidity, valid for relations with economies which, together, represent greater weight in the global market”.

Dependence on the dollar is seen by the new government as a form of loss of national sovereignty. Therefore, the creation of a political and economic coordination instrument for the bloc would strengthen this sovereignty and regional governance. “In recent years, the issue of seeking a reduction in dependence on the dollar has been a reality for important developing countries around the world”, says Nogara.

At the end of January, Haddad even said that “we are not defending a single currency. We [the government] are defending an engineering that is not a payment in local currencies, which did not work, but that does not reach the stage of monetary unification, as is the case with the euro”. Thus, he argues that “a common means of payment between the two countries will strengthen foreign trade in the region”.

Those who think that this project is only defended by the left are wrong. Still in 2021, Paulo Guedes, former Minister of Economy of Jair Bolsonaro, defended the creation of a single currency for Mercosur . He even mentioned that Brazil could be the bloc’s Germany, in comparison with the European Union.

But is this feasible?


Alex Ferreira, professor at the Faculty of Economics, Administration and Accounting at USP in Ribeirão Preto, explains that, in order to establish a common currency between countries, certain characteristics would be necessary: ​​there should be no restrictions on the mobility of factors such as capital and work, symmetry of the effect of economic shocks within the area, a harmonization of macroeconomic indicators, fiscal responsibility and a risk-sharing mechanism. It is no use for a country to be fiscally responsible and take care of the public debt if the other does not, for example.


He says that “Mercosur practically does not meet these requirements”. Currently, the bloc’s countries are not in equal financial conditions: while inflation in Brazil, in the last 12 months, stood at 5.77%, in Argentina this scenario seems like fiction: it reached, in the same period, almost 100% inflation. “The country’s external vulnerability is a fundamentally domestic problem. Argentina faces a chronic fiscal problem, a problem of high inflation, monetization of the deficit, a problem of competitiveness and lack of reserves”, says the professor.

To think of a common currency would be to take a step that is too big for you. This could affect the Brazilian economy and cause losses. Before, the neighboring country would have to solve its inflation problem and, even worse, the low in its dollar reserves. “Voluntarism in solving international financing problems, through the creation of a common currency, in a bloc that does not at all meet the conditions of an optimal monetary area, seems to me a subterfuge that will probably foment recurring deficit problems with the bloc [Mercosur] in the future,” he adds.

Mercosur situation
“Mercosur was created from the 1991 Treaty of Asuncion, which had Brazil, Argentina, Paraguay and Uruguay as signatories. It aimed to establish a common market between these countries, with the later adoption of the common external tariff. Mercosur sought to become a customs union and, nowadays, it is recognized as an imperfect customs union, considering that the free movement of goods between the countries of the bloc is not yet complete”, explains Nogara.

“In the first decade of the 21st century, Mercosur was going through a crisis that was inherited from the financial crisis of the late 1990s, which generated a series of suspicions between Brazil and Argentina”, he says. Since then, the block’s problems have intensified. Maria Antonieta Del Tedesco Lins, professor at USP’s Institute of International Relations, points out that, at that time, shortly after the creation of the bloc, “we entered a period of impasse for Mercosur and, in a way, a certain institutional stagnation”.

Unlike Brazil and Argentina, Uruguay was not so excited about the proposal for a common currency. Currently, the country is in the process of bilateral negotiations with China and, on the other side, with the United States. He, however, is acting alone, without including the rest of Mercosur. “It is a problem from the bloc’s point of view, because, evidently, the bloc exists so that everyone closes agreements together”, evaluates the professor.

“The Lacalle Pou government’s signs of seeking commercial alternatives outside Mercosur, outside the bloc’s negotiations are very clear”, highlights Nogara. This, according to him, makes Uruguay assume a position of leader within the bloc and an opportunity to exercise greater bargaining power over Brazil and Argentina, even more so given the ideological differences between the governments. This is an example of instability in the bloc, marked by economic differences and humanitarian crises, as in the current suspended Venezuela.

South American integration
The creation of a common currency has to take into account all the differences between the countries, but mainly the fact that Mercosur is not as united as it could be. “Although the central banks have worked hard to build this integration and some institutional instruments have actually been created, the integration ends up being much smaller than it would have the potential to be”, explains Maria Antonieta.


The professor also says that the integration between the two countries (Argentina and Brazil), or between the Mercosur member countries, has to be thought of from the cost point of view. “What can offset these costs actually ends up being a political gain from moving forward with integration. Argentina can benefit, especially at this moment, when it is in a situation of significant imbalance in its external accounts, of shortage of international currency”, she says. In this way, Argentina would gain the credibility of Brazil, which, even though it is not in the best possible conditions, is still in a better economic position than its own.



In addition, this integration with Mercosur may represent, for Brazil, a basis from which the country can once again play a leading role in South American regionalism. “Brazil can benefit from this leadership position, which is something it has given up in the last four years. Anyway, it lost a lot and now the new government is trying to build [this leadership] in all international spheres”, explains Maria Antonieta.

This tendency to seek a leadership position is translated into the intention to create a common currency. As Nogara explains, “the creation of a common currency for trade negotiations between the Mercosur countries – at the moment a proposition with a more political and symbolic bias than a practical and operational one – by the governments of Brazil and Argentina more demonstrates a joint intention to revitalize in the multilateral mechanisms of regional cooperation than the necessary progress towards the establishment of this common currency”.

In the wake of news published on the subject, economist Paul Krugman, winner of the Nobel Prize, criticized the idea of ​​creating a common currency . According to him, the idea is “terrible” and whoever came up with it “was certainly not someone who knew anything about international monetary economics”. The opinions were published on his Twitter profile.