Fernández, Lula eye common unit for trade, not a single currency
After criticism, mocking and confusion, Brazilian finance minister reveals plan is to introduce a common unit to settle trading operations between the two countries without relying on the dollar.
Brazil and Argentina are planning to launch a common unit of account to promote bilateral trade rather than a single currency to replace the real and the peso, according to Brazilian Finance Minister Fernando Haddad.
The official’s comments seek to dispel controversy after the presidents of Brazil and Argentina published an op-ed in Perfil last weekend saying they were renewing discussions about a common currency for financial and commercial transactions.
The idea was greeted with scepticism by top economists, who pointed at the lack of policy coordination and wide inflation differentials between South America’s two largest economies as key obstacles.
Haddad said the plan is to introduce a common unit to settle trading operations between the two countries without relying on the dollar.
“We need to see how we’ll do it, but the idea is that we may have a common means of payment between both countries,” Haddad told reporters in Buenos Aires, where he is accompanying Brazilian President Luiz Inácio Lula da Silva in a regional summit.
“We’re talking about a system that’s not based on localcurrency payments, which didn’t work, but that won’t reach the level of monetary unification seen with the euro.”
Lula said during a press conference that he wanted his officials to “make us a proposal for foreign trade and transactions between the two countries to be made in a common currency, which will have to be built with much debate and many meetings.”
The Brazilian leader recalled that his country and Argentina “already had a small experience doing business in the currencies of the two countries” in the first decade of the 21st century.
It was, he acknowledged, “a timid experience”. “Our decision was not binding, but optional,” he recalled.
Argentina’s Economy Minister Sergio Massa, who trailed the idea in an interview with the Financial Times over the weekend, echoed Haddad’s comments, saying both countries were discussing a common, not a single currency.
Brazil and Argentina have for decades considered options to coordinate their currencies, often as a political project to counter the influence of the dollar in the region and to boost bilateral trade. Persistent macroeconomic imbalances, together with political obstacles, have all but blocked progress of the idea.
Brazil’s currency is the real, created in the mid-1990s as part of a strategy to fight inflation, and its central bank is autonomous. Argentina created the current Argentine peso at the beginning of that decade to replace the “austral”, also in the midst of a hyperinflation crisis.
The very different trajectories followed by the two currencies illustrate the challenges of the project. While Brazil has a formal exchange market governed by supply and demand, Argentina has several exchange rates including the official exchange rate, others for commercial transactions, tourism or luxury purchases, and the parallel or “blue” exchange rate.
Argentina’s annual inflation of almost 100 percent compared to Brazil’s 5.8 percent and the fast depreciation of the peso in recent years are an immediate challenge to plans for a common currency.