News from the Financial Associated Press on January 23 (edited by Shi Zhengcheng)Last Sunday evening local time in South America, Brazilian President Lula arrived in Buenos Aires, the capital of Argentina, by special plane. This was also his first foreign visit after being re-elected president. According to the itinerary, he will meet with Argentine President Fernandez on Monday and attend a summit of leaders of the Community of Latin American and Caribbean States (CELAC) on Tuesday.
As far as the international financial market is concerned, the biggest highlight of this summit of South American leaders is the unified currency of South America that is showing budding momentum.
On the occasion of Lula’s visit to Argentina, the two heads of state published a co-signed article “Restarting the Strategic Alliance between Argentina and Brazil” in Argentina’s “Silhouette”, which clearly mentioned the promotion of the establishment of a unified currency in South America.
The two heads of state stated: “We plan to break down barriers to transactions, simplify and modernize relevant rules, and encourage the use of local currencies, and we have also decided to advance discussions on a common currency in South America, a mechanism that can be used to facilitate financial and trade flows, reduce operating costs and external vulnerabilitiesāć
How to advance the unified currency of South America? What are the obstacles?
In the current global financial landscape, the euro is the only regional joint currency with international influence, corresponding to 14% of the global GDP in the euro zone countries. Others, such as the CFA franc, which is anchored to the euro, and the East Caribbean dollar have limited influence.
Because of this, if the South American countries, which account for nearly 5% of the global GDP, can really “group together” successfully, it will be a major event recorded in the history of international finance. However, since the euro itself was an important matter finalized when the “EU Treaty” was concluded, the creation process of the “South Dollar” may be simplified a lot.
Argentine Economy Minister Sergio Massa said in an interview with the media that this week’s meeting will result in a decision to initiate research on the parameters required to issue a common currency, including fiscal issues and central bank responsibilities. When the South Dollar hits the shelves, it will be in circulation with the Brazilian Real and the Argentine Peso.
Massa further stated,At the beginning, “South Dollar” was a project of Afghanistan and Pakistan, and more Latin American countries are being invited to participate. The economy minister also cautioned that it may take many years for the project to “come to fruition”, which can be compared to the 35 years it took Europe to create the euro.
In fact, Brazil and Argentina have been discussing a “common currency” for many years, but the Central Bank of Brazil has always been concerned about this proposal, mainly because of Argentina’s economic situation.
During the first three years of Fernandez’s administration,The Argentine central bank started the “flood backflow” money printing model, and the currency circulation of the entire society quadrupled. Superimposed on the Fed’s ultra-loose monetary policy and the international inflation environment, Argentina’s recent inflation rate has approached 100%.To put it another way, the 1,000-peso banknote with the largest denomination in Argentina is only worth 5 yuan when converted into the U.S. dollar, while its purchasing power was close to 60 U.S. dollars six years ago.
It is reasonable for the Central Bank of Brazil to have concerns about deep economic integration with such a neighbor. Since the debt default in 2020,Argentina has been kicked out of the international bond market, and it still owes tens of billions of dollars to the IMFć
In addition to the leaders of Brazil and Argentina,This week’s CELAC is also seen as a gathering of South American left leaders. After recent changes, the political winds in South America have also changed significantly. Gustavo Petro, the first leftist president of Colombia, Gabriel Boric, the youngest president in Chile’s history, Maduro of Venezuela and Miguel Diaz-Canel, president of the Republic of Cuba, are expected to will be attending.