According to the initiative, with the common currency they call “South” it is expected to be the second largest currency union in the world after the eurozone.
“I think it’s going to happen and I think it needs to happen. Because there are countries that sometimes have difficulties in acquiring dollars and agreements can be established that later, the central banks set the exchange rate to carry out the commercial exchange”, indicated Lula da Silva at a press conference held at the Casa Rosada in Argentina.
In Peru, Luis Arias Minayaformer vice president of the Central Reserve Bank of Peru and former head of Sunat, stated that the common currency proposal in South America is not viable.
Among the reasons, Arias pointed out that, in order to materialize the idea, there must first be an integrated common market and harmonization of monetary policies, but with this “central banks stop making sense”.
“There must be harmonization of fiscal policies, as well as similar economic models, but none of that exists between Brazil and Argentina.”, he pointed out in Gestión.pe.
Along these lines, he mentioned that Peru is less likely to join this “political proposal”.
In the same way, Juan José Marthans, director of Economy of the PAD and former head of the SBS, explained that the two economies are not in a position for this idea to be successful due to the situation in both countries.
It should be noted that Argentina closed 2022 with 94.8% inflationthe highest since 1991, in compared to 5.79% in Brazil.
“It is the worst moment to look for a single currency, not only due to the international volatility environment, but also due to the fact that an economy in Latin America is damaged, like Argentina’s, which first has to solve its internal problems. So, starting an evaluation process is quite primary.”, he referred.
Along these lines, Marthans explained that Latin America is so heterogeneous that the chances of reaching a common market, such as the eurozone, are years away.
“For this reason (the common currency) will not be a reality in the short or medium term, and little probability in the long term. It is a proposal with more political margin than technical. It’s only going to generate more noise than nuts”, he narrowed.
He added that Peru it should not be distracted by the issue of a common currency in the region, since it is still seen as a good economy within the Pacific Alliance, despite internal blows on the political front.
The economist maintained that they should consider the commercial integration of the entire continent to improve their competitiveness.
“What has to be done is to work in markets that make it possible to consolidate different fronts and that does not compromise the internal discussion of reaching a single currency until today.“, accurate.
The reaction in other countries
Both countries already discussed the idea in 2019, but were met with rejection by Brazil’s central bank at the time. Now that the debate is back, most economies refuse to join the common currency.
In Chilethe Minister of Finance, Mario Marcel, distanced himself from the idea of concretize a common currency in South America.
“For the moment we are comfortable having our own fiscal and monetary policies, which have been especially useful to start reducing inflation this year“, he claimed.
Meanwhile, the senator and former president of the Central Bank of UruguayMario Bergara, stressed that the proposal would not have any feasibility.
“Mercosur is far from satisfying the minimum conditions of this process. Not only are there no conditions for monetary unification or a common currency, nor are there conditions for the coordination of macroeconomic policies, especially in the fiscal field”, argued in the Uruguayan portal La Diaria.
For his part, Olivier Blanchard, former chief economist at the International Monetary Funddescribed in Bloomberg that the proposal is “far-fetched”, while the ex-secretary of the United States Treasury Larry Summers called it “highly problematic given differences in economies”.
However, the president of Venezuela, Nicolas Maduro, assured that his country supports this measure proposed by the countries of Brazil and Argentina. “I announce that Venezuela is ready and we support the initiative to create a Latin American and Caribbean currency”, said the Venezuelan president.