Brazil and Argentina currency: countries want to create their own “euro”
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.
Default in the U.S. will force the world to look for an alternative to the dollar
A default in the U.S. would have significant implications for the global economy, including a potential decline in world stock markets and widespread panic. However, one of the most crucial concerns for the international community would be the search for an alternative to the dollar as the primary reserve currency, as cautioned by The Economist, a British publication.
If the U.S. Congress fails to raise the debt ceiling in a timely manner, it could result in the country’s first-ever national debt default in modern history. Given the widespread belief in the stability of the U.S. economy, the failure to meet expectations would have irreversible consequences, according to the publication.
“In most cases, the currency of countries that default experiences significant depreciation. This would cast doubt on the future of the dollar as a safe haven during times of crisis, leading investors to explore alternative options,” The Economist concluded.
Previously, Brazilian President Luiz Inácio Lula da Silva called on BRICS countries to diminish the dominance of the dollar. He expressed the belief that developing nations should utilize their own currencies in global trade and advocated for the BRICS to explore the possibility of creating an alternative currency.
Earlier we reported that the ECB prepares to introduce a digital euro.
ECB prepares to introduce digital euro
The digital euro is expected to be launched in three to four years, with the availability of bills being based on demand, according to Fabio Panetta, a member of the European Central Bank (ECB) Executive Board, as reported by Les Echos.
To ensure compatibility with other similar currencies, Panetta stated that the ECB has been collaborating closely with the central banks of the United States, Britain, Switzerland, Canada, Japan, and Sweden.
Panetta believes that although interoperability is desirable, different national privacy regulations could complicate the process at this preliminary stage of comparison.
Experts anticipate that the ECB’s plans for the digital euro are primarily focused on retail usage. The digital currency could be transferred using a digital wallet and could be accessed through a standard app or existing online banking apps. The digital euro is not intended to replace cash but rather to provide an additional method of storing currency. It would serve as a secure and user-friendly electronic means of payment available to anyone in the eurozone.
Earlier we reported that the dollar appreciated against the euro and the yen ahead of the release of U.S. data.
The dollar appreciated against the euro and the yen ahead of the release of U.S. data
According to trading data, on Monday evening, the dollar rose against the euro and the yen in anticipation of the minutes from the May meeting of the U.S. Federal Reserve (Fed) and the country’s GDP data.
The euro-dollar exchange rate declined from $1.0808 to $1.0804, while the dollar-yen exchange rate increased from 137.99 yen to 138.53 yen. The dollar index, which measures the exchange rate against a basket of currencies from six U.S. trading partners, rose 0.04% to 103.24 points.
Currency investors are eagerly awaiting the release of the minutes from the U.S. Federal Reserve’s May meeting, which took place after the central bank raised the discount rate by 25 basis points to 5-5.25% per annum.
On Thursday, the second estimate of U.S. GDP growth for the first quarter will be published. Analysts anticipate that the U.S. The Treasury will maintain its estimate of 1.1% year-on-year growth for the country’s economy.
Earlier we reported that the euro’s share of global settlements fell to a three-year low of 31.74%.
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