The World Briefly

January 25, 2023

The Dreamy Union

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Argentina and Brazil are mulling the creation of a common currency for the two nations, an ambitious plan that has been met with skepticism from economists, CNBC reported Tuesday.

The proposal was unveiled during a meeting in Argentina this week between Brazilian President Luiz Inácio Lula da Silva and his Argentinian counterpart Alberto Fernández.

Lula said the common currency would be designed for trade and transactions between the neighbors, which are also Latin America’s largest economies. He added that the currency could later be adapted by other members of Mercosur, South America’s major trading bloc.

The two leaders explained that the goal is to reduce the dependence on the US dollar and other foreign currencies, which they describe as harmful, the Associated Press noted.

Still, details of the plan remain unclear, as the currency does not yet have a name or deadline. Brazil’s Finance Minister Fernando Haddad noted that the two nations were not looking for a euro-style monetary union.

Analysts quickly shot down the proposal as “pie in the sky,” noting that there were major distinctions between the two economies while highlighting the rapid shift of political winds in the region.

Argentina has been experiencing economic issues with an inflation rate last year of 95 percent  and a depreciating currency. Nearly four in 10 Argentinians live in poverty.

Brazil has been faring better but saw its inflation rate in 2022 exceeding the ceiling set by the central bank for a second straight year. The country’s development prospects are still bleak, and it hasn’t had a primary budget surplus since 2013.

Observers added that the initiative appears to be more about politics, as Fernández will seek reelection this year amid ongoing economic woes.

This story originally appeared in the January 25, 2023 newsletter, The Virtual Front.