Brazil and Argentina revive common currency plan

Brazil and Argentina have agreed to discuss creating a common currency, reviving a goal held for decades by left-wing leaders and reviled by economists in both countries. In an opinion piece for Argentine newsletter Perfil, Brazilian President Lula de Silva and Argentina’s president Alberto Ferndanez emphasized the importance of keeping both the real and peso, suggesting that the new “sur” would operate in parallel to both.

While the project is nominally intended to manage exchange-rate risk and reduce operational overheads, both leftist leaders are keen to reduce dependence on the US dollar after a brutal tightening cycle and longstanding accusations of its role as a vestige of colonial dependence.

The negotiations, which were initiated by Argentina, have no set deadline and appear reminiscent of similar initiatives that failed in the past due to the high volatility and political barriers to cooperation that currently stalk the Mercosur trade bloc. A 95% differential in inflation, drastic differences in central bank independence and the Brazilian real’s relative strength compared to the peso all pose substantial barriers to any common currency.

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