Argentina and Brazil Explore Common Currency

The two biggest economies in South America are reportedly working on a common currency.

Brazil and Argentina will announce the project this week, the Financial Times (FT) reported Saturday (Jan. 21), noting that the move could someday create the second-biggest currency bloc on the planet.

“There will be . . . a decision to start studying the parameters needed for a common currency, which includes everything from fiscal issues to the size of the economy and the role of central banks,” Argentina’s economy minister Sergio Massa told the FT.

“It would be a study of mechanisms for trade integration,” Massa added. “I don’t want to create any false expectations . . . it’s the first step on a long road which Latin America must travel.”

Massa also noted the effort could take years, telling the FT the euro took 35 years to launch.

The two countries are set to discuss the plan this week at a summit in Buenos Ares and will invite other countries in Latin America to take part. Officials said the project will initially focus on how a new currency — Brazil recommends naming it the “sur” for south — could increase trade in the region and reduce dependence on the dollar.

The FT estimates that a currency union encompassing all of Latin America would represent 5% of worldwide gross domestic product (GDP), compared to the 14% represented by the euro, the largest currency union in the world.

The effort is happening as 114 countries, making up more than 95% of global GDP, are exploring the feasibility of launching a central bank digital currency for their nation, PYMNTS wrote recently.

Countries are researching and even acting out what the launch of a sovereign, virtual currency backed by a national banking system could mean for their economies.

In the U.S., a project by the Federal Reserve Bank of Boston and the Digital Currency Initiative at the Massachusetts Institute of Technology (MIT) has shown the technical feasibility of a U.S. CBDC, while the New York Federal Reserve is conducting a “watershed” digital currency project with a consortium of leading commercial banks.

That said, a white paper published last week by the nonprofit Digital Dollar Project conceded that the U.S. has so far conceded a “head start to other nations in setting global standards for the future of money.”

“In the coming CBDC future, the U.S. should actively lead global discussions on governance, interoperability, security, privacy and scalability standards rather than reacting to foreign CBDC decisions,” the paper added.

Last year saw the Bank of Central African States (BEAC) embark on a project that would make it the first regional bank on the continent to launch a common digital currency.

BEAC, which serves Cameroon, Gabon, Chad, the Republic of Congo, Equatorial Guinea, and the Central African Republic (CAR), was urged to advance the move by its board last summer.