Brazil & Argentina Joint Currency Met With Scepticism

January 29, 2023

 

A suggestion by the presidents of Brazil and Argentina to launch a common currency is being met with scepticism by economists, who believe that neither country is in a position to do so.

Brazil’s President Lula had suggested that a common currency would reduce both countries’ difficulties in acquiring US dollars. Lula explained that the currency would initially be shared between Argentina and Brazil for trade and transactions between the two countries, with the Finance Minister clarifying that the proposal would not entail the adoption of a sole currency to replace the Brazilian Real or the Argentine Peso.

Economists have been questioning the logic of the suggestion. Economic conditions are worsening in Argentina, where nearly four in ten live in poverty, the inflation rates are amongst the highest in the world, and the the peso has been depreciating for over a decade.

Brazil is in a better position, but not in a successful one. It’s own inflation exceeded the Central Bank’s target range for a second straight year in 2022 and their currency has halved in value against the dollar since 2014. This was followed by the deepest recession in a century, and no primary budget surplus since.

Most economists believe that a currency could not function between the two countries, although agree that the current dependance on foreign currencies is harmful for trade.

 

 

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