A new Brazil and Argentina currency will soon appear on the Forex market? Brazilian President Luiz Inacio Lula da Silva and Argentine President Alberto Fernandez announced in a joint article that they had decided “to intensify discussions of a common South American currency, which can be used to serve both financial and trade flows, reduce transaction costs and foreign economic vulnerabilities.

What’s known about the initiative

Back in 2019, then-Brazilian President Jair Bolsonaro said that Brazil and Argentina were preparing to take the “first step” toward “the dream of a single currency.” At the time, the idea was met with skepticism in Brazil.

In 2021, Brazilian Economy Minister Paulo Guedes said that in a potential currency union, Brazil could take on the role played by Germany in the eurozone. But it is unlikely that the sur currency could fully compete with the euro and dollar.

The sur currency would not replace the real and Argentine peso — at least at first — and would be used in parallel with them, the Argentine publication Perfil specifies.

Brazilian Finance Minister Fernando Addad stressed on Sunday, January 22, that the two countries have a new tool to strengthen mutual trade and do not intend to give up their own currencies. According to Bloomberg, talks are at a very early stage and no target date has been set. The common market arrangement that groups Brazil and Argentina, should be thus stimulated.

Why a “common currency” is needed

Explanations from Brazilian and Argentine officials show that there is no question of creating a currency union similar to the eurozone. “We need something that allows us to increase bilateral trade, given that Argentina is one of the countries that buys finished goods from Brazil and our exports there are declining,” the head of the Brazilian Ministry of Finance pointed out (quoted by Bloomberg).

In December 2022, Argentina’s Buenos Aires Herald website reported, citing sources, that “the focus would be on creating a common currency,” a concept that differs from “a single currency because it does not involve abandoning the national currencies of Brazil and Argentina.” Such a currency would allow Argentina to buy Brazilian goods without having to spend dollars from reserves, the publication argued.

Earlier we reported that Japan and China gave up first place to the EU as the world’s largest importers of LNG.