Lula floats shared 'trading currency' during Argentina trip
Brazil bilateral agreement signing ceremony in Buenos Aires
Mon, January 23, 2023
By Lisandra Paraguassu
BUENOS AIRES (Reuters) -Brazil and Argentina are in early talks to establish a shared unit of value for bilateral trade to reduce reliance on the U.S. dollar, Brazilian President Luiz Inacio Lula da Silva said on Monday, though the move is not aimed at replacing existing currencies.
In Buenos Aires on his first international visit since taking office, Lula made the comments alongside Argentine President Alberto Fernandez, a leftist ally, who said there was little decided about what would be involved in such a proposal.
The discussions surfaced as part of an agreement to boost bilateral trade with more Brazilian export financing backed by Argentina's international collateral.
Argentina's economy is suffering from a series of challenges, including a lack of dollars, with the government battling to replenish foreign currency reserves while also grappling with an inflation rate of nearly 100% last year.
Leaders from both countries are meeting at a regional summit in the Argentine capital, where Lula vowed to resume a closer relationship after former Brazilian president Jair Bolsonaro distanced himself from Argentina.
"Our finance ministers, each with his own economic team, can make us a proposal for foreign trade and transactions between the two countries that is done in a common currency," Lula told reporters alongside Fernandez.
Fernandez said that he and Lula also discussed the possibility of shipping gas from Argentina's Vaca Muerta shale formation to its neighbor.
Brazil's development bank BNDES may finance the building of a pipeline to deliver the gas, Lula said.
Brazil's Finance Executive Secretary, Gabriel Galipolo, told Reuters that the currency, or "regional unit of account," would come alongside extra credit to support exports to Argentina through Brazilian banks that operate locally.
Brazil's government would offer guarantees to banks that helped provide financing, while Argentina, a major grains exporter, would have to provide collateral via hard assets like grains, gas or oil.
Under the plan, the Brazilian real and Argentine peso would continue to exist, with the new tender targeted narrowly at trade.
Brazil's Finance Minister Fernando Haddad said the presidents of both countries requested the creation of a clearing house with a common currency to settle accounts.
The currency has no name or deadline and would not seek euro-style monetary unification, he added.
(Reporting by Lisandra Paraguassu and Marcela Ayres; Writing by Gabriel Araujo and Peter Frontini; Editing by Brad Haynes, Paul Simao and Rosalba O'Brien)
Brazil and Argentina to discuss common currency
Argentina's President Alberto Fernandez greets Brazil's President
Brazil bilateral agreement signing ceremony in Buenos Aires
Mon, January 23, 2023
By Lisandra Paraguassu
BUENOS AIRES (Reuters) -Brazil and Argentina are in early talks to establish a shared unit of value for bilateral trade to reduce reliance on the U.S. dollar, Brazilian President Luiz Inacio Lula da Silva said on Monday, though the move is not aimed at replacing existing currencies.
In Buenos Aires on his first international visit since taking office, Lula made the comments alongside Argentine President Alberto Fernandez, a leftist ally, who said there was little decided about what would be involved in such a proposal.
The discussions surfaced as part of an agreement to boost bilateral trade with more Brazilian export financing backed by Argentina's international collateral.
Argentina's economy is suffering from a series of challenges, including a lack of dollars, with the government battling to replenish foreign currency reserves while also grappling with an inflation rate of nearly 100% last year.
Leaders from both countries are meeting at a regional summit in the Argentine capital, where Lula vowed to resume a closer relationship after former Brazilian president Jair Bolsonaro distanced himself from Argentina.
"Our finance ministers, each with his own economic team, can make us a proposal for foreign trade and transactions between the two countries that is done in a common currency," Lula told reporters alongside Fernandez.
Fernandez said that he and Lula also discussed the possibility of shipping gas from Argentina's Vaca Muerta shale formation to its neighbor.
Brazil's development bank BNDES may finance the building of a pipeline to deliver the gas, Lula said.
Brazil's Finance Executive Secretary, Gabriel Galipolo, told Reuters that the currency, or "regional unit of account," would come alongside extra credit to support exports to Argentina through Brazilian banks that operate locally.
Brazil's government would offer guarantees to banks that helped provide financing, while Argentina, a major grains exporter, would have to provide collateral via hard assets like grains, gas or oil.
Under the plan, the Brazilian real and Argentine peso would continue to exist, with the new tender targeted narrowly at trade.
Brazil's Finance Minister Fernando Haddad said the presidents of both countries requested the creation of a clearing house with a common currency to settle accounts.
The currency has no name or deadline and would not seek euro-style monetary unification, he added.
(Reporting by Lisandra Paraguassu and Marcela Ayres; Writing by Gabriel Araujo and Peter Frontini; Editing by Brad Haynes, Paul Simao and Rosalba O'Brien)
Brazil and Argentina to discuss common currency
Argentina's President Alberto Fernandez greets Brazil's President
Luiz Inacio Lula da Silva at the Itamaraty Palace in Brasilia
Sun, January 22, 2023
By Lisandra Paraguassu
BUENOS AIRES (Reuters) - Brazil and Argentina aim for greater economic integration, including the development of a common currency, Brazilian President Luiz Inacio Lula da Silva and Argentine leader Alberto Fernandez said in a joint article they penned.
"We intend to overcome the barriers to our exchanges, simplify and modernize the rules and encourage the use of local currencies," says the text published on the Argentine website Perfil.
"We also decided to advance discussions on a common South American currency that can be used for both financial and commercial flows, reducing costs operations and our external vulnerability," the article said.
The idea of a common currency was raised originally in an article written last year by Fernando Haddad and Gabriel Galipolo, now Brazil's finance minister and his executive secretary, respectively, and was mentioned by Lula during the campaign.
Lula chose Argentina for his inaugural international trip since taking office, keeping with the tradition of first visiting Brazil's largest trading partner in the region. That follows four years of tense relations during the government of former Brazilian right-wing President Jair Bolsonaro.
Lula's trip to neighboring Argentina also marks the return of Brazil to the Community of Latin American and Caribbean States (CELAC), which Brazil left in 2019 under order from Bolsonaro, who refused to participate in the regional group due to the presence of Cuba and Venezuela.
Both presidents emphasized the need for a good relationship between Argentina and Brazil to strengthen regional integration, according to the article.
The leaders also emphasized strengthening the Mercosur trade bloc, which includes Argentina, Brazil, Paraguay and Uruguay, and which Brazilian Finance Minister Haddad recently lamented has been abandoned in recent years.
"Together with our partners, we want Mercosur to constitute a platform for our effective integration into the world, through the joint negotiation of balanced trade agreements that respond to our strategic development objectives," both presidents said.
Earlier in the day, the Financial Times reported the neighboring nations will announce this week they are starting preparatory work on a common currency.
The plan, set to be discussed at a summit in Buenos Aires this week, will focus on how a new currency which Brazil suggests calling the "sur" (south) could boost regional trade and reduce reliance on the U.S. dollar, FT reported citing officials.
Politicians from both countries have discussed the idea already in 2019, but met with pushback from Brazil's central bank at the time.
Initially starting as a bilateral project, the initiative would later be extended to invite other Latin American nations, the report said, adding an official announcement was expected during Lula's visit to Argentina that starts on Sunday night.
(Reporting by Lisandra Paraguassu; Additional reporting by Jyoti Narayan in Bengaluru; Editing by Tomasz Janowski, Diane Craft and Chris Reese)
Sun, January 22, 2023
By Lisandra Paraguassu
BUENOS AIRES (Reuters) - Brazil and Argentina aim for greater economic integration, including the development of a common currency, Brazilian President Luiz Inacio Lula da Silva and Argentine leader Alberto Fernandez said in a joint article they penned.
"We intend to overcome the barriers to our exchanges, simplify and modernize the rules and encourage the use of local currencies," says the text published on the Argentine website Perfil.
"We also decided to advance discussions on a common South American currency that can be used for both financial and commercial flows, reducing costs operations and our external vulnerability," the article said.
The idea of a common currency was raised originally in an article written last year by Fernando Haddad and Gabriel Galipolo, now Brazil's finance minister and his executive secretary, respectively, and was mentioned by Lula during the campaign.
Lula chose Argentina for his inaugural international trip since taking office, keeping with the tradition of first visiting Brazil's largest trading partner in the region. That follows four years of tense relations during the government of former Brazilian right-wing President Jair Bolsonaro.
Lula's trip to neighboring Argentina also marks the return of Brazil to the Community of Latin American and Caribbean States (CELAC), which Brazil left in 2019 under order from Bolsonaro, who refused to participate in the regional group due to the presence of Cuba and Venezuela.
Both presidents emphasized the need for a good relationship between Argentina and Brazil to strengthen regional integration, according to the article.
The leaders also emphasized strengthening the Mercosur trade bloc, which includes Argentina, Brazil, Paraguay and Uruguay, and which Brazilian Finance Minister Haddad recently lamented has been abandoned in recent years.
"Together with our partners, we want Mercosur to constitute a platform for our effective integration into the world, through the joint negotiation of balanced trade agreements that respond to our strategic development objectives," both presidents said.
Earlier in the day, the Financial Times reported the neighboring nations will announce this week they are starting preparatory work on a common currency.
The plan, set to be discussed at a summit in Buenos Aires this week, will focus on how a new currency which Brazil suggests calling the "sur" (south) could boost regional trade and reduce reliance on the U.S. dollar, FT reported citing officials.
Politicians from both countries have discussed the idea already in 2019, but met with pushback from Brazil's central bank at the time.
Initially starting as a bilateral project, the initiative would later be extended to invite other Latin American nations, the report said, adding an official announcement was expected during Lula's visit to Argentina that starts on Sunday night.
(Reporting by Lisandra Paraguassu; Additional reporting by Jyoti Narayan in Bengaluru; Editing by Tomasz Janowski, Diane Craft and Chris Reese)
Diego Lasarte
Mon, January 23, 2023
The presidents of Brazil and Argentina are considering creating a common Latin American currency.
Presidents Lula Ignacio de Silva of Brazil and Alberto Fernandez of Argentina announced the discussions at the Community of Latin American and Caribbean States (CELAC) conference this week in Buenos Aires, reviving a perennial proposal to challenge the US dollar’s dominance in the region.
In an article published in Perfil, an Argentinian newspaper, presidents Lula and Fernandez wrote their countries are exploring options to create a common currency called the sur (south in Spanish), meant to encourage financial and commercial transactions between the countries. Argentina economic minister Sergio Massa added Brazil and Argentina would invite other countries in Latin America to join, but urged patience, citing the difficulty of trade integration.
The move illustrates how Lula is pushing forward on his campaign promises to foster greater economic interdependence in the region. Elected to office at a time when the majority of Latin American countries have left-wing heads of state—including the region’s five largest economies, Lula and other leaders have close ties, raising the possibility of a new era of collaboration for the rapidly developing countries to counter economic influence by the United States.
The day after the announcement, Brazilian finance minister Fernando Haddad played down the idea of completely overhauling the real, saying the countries were exploring all opportunities to increase trade. In the meantime, Argentina is battling its worst inflation in three decades, while economic growth in Brazil is expected to slow as Lula follows through on plans to boost public spending.
Argentina’s surging inflation rate:
datawrapper-chart-pfxJ7
The gaucho: Latin America has flirted with a common currency before
In 1987, the leaders of Brazil and Argentina announced the creation of a “currency unit to enable regional payments,” called the gaucho. Sound familiar?
The idea of a joint currency has long held traction in the region, with populist leaders pointing to the dominance of the dollar as evidence of neo-colonialism. Three countries in Latin America (Ecuador, El Salvador, and Panama) use the greenback as their primary domestic currency, ensuring an outsized American influence in their economies.
However, the formation of a joint currency is not an easy task. Initial negotiations for the European Union’s unified currency took over a decade. And, when the euro was launched in 1999, it was considered an invisible currency for the first three years and only used for accounting purposes and electronic payments. It wasn’t until 2009 that the Lisbon Treaty formed the Eurogroup, the official governing body of the currency.
Demand for an alternative to the US dollar is increasing worldwide, with Russia and China promoting their currencies for international payments, most notably after recent US sanctions on Russian raised the possibility that the dollar could become a tool of political exertion.
Additionally, the dollar’s relative strength in 2022 caused consumer prices and debt-repayment burdens in some regions to rise, with the new government of Myanmar saying the dollar was used to “bully smaller nations.”
Explainer-What Brazil and Argentina's 'currency union' really means
Argentina-Brazil bilateral agreement signing ceremony in Buenos Aires
Mon, January 23, 2023
By Marcela Ayres
BRASILIA (Reuters) - Brazil and Argentina sparked some excitement on Sunday over the possibility of a potential "currency union", though the two countries are unlikely to ditch the real or peso any time soon. So what is the plan all about?
WHAT DID THEY SAY?
In a joint letter, new Brazilian President Luiz Inacio Lula da Silva and Argentine leader Alberto Fernandez said they wanted to "advance discussions on a common South American currency" to be used for financial and trade flows.
That sparked off chatter about a European Union-style zonal currency for South America, though officials have since played that down and analysts say a full-on currency union is a distant prospect.
Lula has since said that early talks are focused on developing a shared unit of value for bilateral trade to reduce reliance on the U.S. dollar.
Brazil's Executive Secretary of the Finance Ministry, Gabriel Galipolo, told Reuters that the "regional unit of account" would come alongside expanded credit to support exports to Argentina through banks that operate in the country.
He said that Brazil's government would offer guarantees to banks that helped provide financing, while Argentina, a major grains exporter, would have to provide collateral via hard assets like grains, gas or oil.
SO NO SOUTH AMERICAN EURO?
Under the plan, the Brazilian real and Argentine peso would continue to exist, with the new tender targeted narrowly at trade. That's very different from, say, the euro, which is used for all kinds of transactions within the European bloc.
The tender would be used in clearing houses to execute trade payments between the two countries, helping in part to trim reliance on the dollar. That is key for Argentina, which is grappling with low foreign currency reserves after years of debt crises.
"This currency would not circulate within Brazil or Argentina. It's specifically to be a common denominator of trade exchanges," said Fabio Terra, professor of Economics at the Federal University of ABC.
WHAT WOULD IT BE WORTH?
How the new currency would be valued is still to be debated, but the Brazilian government is looking at stablecoins as a possible reference, Galipolo told Reuters.
Digital stablecoins, pegged to an asset like gold, or major currencies such as the euro, pound, and U.S. dollar, have emerged as issuers seek to expand uses for digital currencies, which are generally unregulated and volatile.
"It is obvious that the real will have the greatest weight in the equation because it is the most liquid currency we have in the international market," Galipolo said.
HAS THIS BEEN TRIED BEFORE?
In the late 1980s, Brazil and Argentina discussed the idea of a shared currency for trade called the 'gaucho', which fell by the wayside due to challenge implementing the idea. In 2019, former Brazilian President Jair Bolsonaro touted plans for a currency union, which also never materialized.
The economic team of Brazil's government, however, now thinks a combined trade-focused tender and beefed-up financing could help the South American country claw back trade with Argentina it has lost to China in recent years.
(Reporting by Marcela Ayres, Editing by Adam Jourdan and Rosalba O'Brien)
Argentina-Brazil bilateral agreement signing ceremony in Buenos Aires
Mon, January 23, 2023
By Marcela Ayres
BRASILIA (Reuters) - Brazil and Argentina sparked some excitement on Sunday over the possibility of a potential "currency union", though the two countries are unlikely to ditch the real or peso any time soon. So what is the plan all about?
WHAT DID THEY SAY?
In a joint letter, new Brazilian President Luiz Inacio Lula da Silva and Argentine leader Alberto Fernandez said they wanted to "advance discussions on a common South American currency" to be used for financial and trade flows.
That sparked off chatter about a European Union-style zonal currency for South America, though officials have since played that down and analysts say a full-on currency union is a distant prospect.
Lula has since said that early talks are focused on developing a shared unit of value for bilateral trade to reduce reliance on the U.S. dollar.
Brazil's Executive Secretary of the Finance Ministry, Gabriel Galipolo, told Reuters that the "regional unit of account" would come alongside expanded credit to support exports to Argentina through banks that operate in the country.
He said that Brazil's government would offer guarantees to banks that helped provide financing, while Argentina, a major grains exporter, would have to provide collateral via hard assets like grains, gas or oil.
SO NO SOUTH AMERICAN EURO?
Under the plan, the Brazilian real and Argentine peso would continue to exist, with the new tender targeted narrowly at trade. That's very different from, say, the euro, which is used for all kinds of transactions within the European bloc.
The tender would be used in clearing houses to execute trade payments between the two countries, helping in part to trim reliance on the dollar. That is key for Argentina, which is grappling with low foreign currency reserves after years of debt crises.
"This currency would not circulate within Brazil or Argentina. It's specifically to be a common denominator of trade exchanges," said Fabio Terra, professor of Economics at the Federal University of ABC.
WHAT WOULD IT BE WORTH?
How the new currency would be valued is still to be debated, but the Brazilian government is looking at stablecoins as a possible reference, Galipolo told Reuters.
Digital stablecoins, pegged to an asset like gold, or major currencies such as the euro, pound, and U.S. dollar, have emerged as issuers seek to expand uses for digital currencies, which are generally unregulated and volatile.
"It is obvious that the real will have the greatest weight in the equation because it is the most liquid currency we have in the international market," Galipolo said.
HAS THIS BEEN TRIED BEFORE?
In the late 1980s, Brazil and Argentina discussed the idea of a shared currency for trade called the 'gaucho', which fell by the wayside due to challenge implementing the idea. In 2019, former Brazilian President Jair Bolsonaro touted plans for a currency union, which also never materialized.
The economic team of Brazil's government, however, now thinks a combined trade-focused tender and beefed-up financing could help the South American country claw back trade with Argentina it has lost to China in recent years.
(Reporting by Marcela Ayres, Editing by Adam Jourdan and Rosalba O'Brien)
Capitalist Economists Laugh Off South America’s Common Currency Idea
Juan Pablo Spinetto
Mon, January 23, 2023 at 9:39 AM MST·2 min read
(Bloomberg) -- Top economists dismissed the creation of a common currency by Argentina and Brazil, saying the idea floated by the presidents of both countries on Sunday faces too many practical obstacles for it to become reality.
Mohamed El-Erian, chief economic adviser at Allianz SE and Bloomberg Opinion columnist, wrote on Twitter that South America’s two largest economies are in no position to make the idea succeed given their current conditions, and that the implementation of a common currency is “far from probable.”
John Barrdear, an economist at the Bank of England, said a currency union between both countries would be “ambitious,” and Chile’s former central bank President Jose De Gregorio said Brazil would risk its sound monetary policy by linking its currency to Argentina: “It doesn’t make much sense,” he told Radio Infinita.
Olivier Blanchard, a former International Monetary Fund chief economist, called the proposal “insane” while former US Treasury Secretary Larry Summers labeled it “highly problematic given the differences in the economies.”
Brazil and Argentina are seeking to renew discussions on forming a common currency for financial and commercial transactions, Presidents Luiz Inacio Lula da Silva and Alberto Fernandez wrote in a joint article in a local newspaper on Sunday ahead of a regional summit taking place in Buenos Aires this week.
While the proposal aims to boost regional trade and integration of the neighboring countries, it faces numerous political and economic hurdles before becoming reality. Similar attempts in past decades failed to gather steam amid macroeconomic instability and government changes.
Argentina’s annual inflation of almost 100% compared to Brazil’s 5.8% and the fast depreciation of the peso in recent years are an immediate challenge to the idea of a common currency, among other different obstacles.
What Bloomberg Economics Says
“The idea of a single South American currency — or even one only for Brazil and Argentina — lacks in merit and has a poor timing. The region does not have what it takes to justify and sustain a single currency: there’s no labor and capital mobility, there’s price and wages rigidities in several countries, the business cycles are not synchronous, and most of the countries in the region do not have the fiscal space to afford the fiscal transfers that this kind of mechanism demands.”
— Adriana Dupita, Brazil and Argentina economist
Even if it’s hard to see a unified Argentina-Brazil currency any time soon, the idea still triggered a cascade of different comments on social media. Brian Armstrong, chief executive officer of Coinbase Global Inc., a publicly traded crypto exchange, suggested the South American countries should instead adopt Bitcoin in the long term.
Juan Pablo Spinetto
Mon, January 23, 2023 at 9:39 AM MST·2 min read
(Bloomberg) -- Top economists dismissed the creation of a common currency by Argentina and Brazil, saying the idea floated by the presidents of both countries on Sunday faces too many practical obstacles for it to become reality.
Mohamed El-Erian, chief economic adviser at Allianz SE and Bloomberg Opinion columnist, wrote on Twitter that South America’s two largest economies are in no position to make the idea succeed given their current conditions, and that the implementation of a common currency is “far from probable.”
John Barrdear, an economist at the Bank of England, said a currency union between both countries would be “ambitious,” and Chile’s former central bank President Jose De Gregorio said Brazil would risk its sound monetary policy by linking its currency to Argentina: “It doesn’t make much sense,” he told Radio Infinita.
Olivier Blanchard, a former International Monetary Fund chief economist, called the proposal “insane” while former US Treasury Secretary Larry Summers labeled it “highly problematic given the differences in the economies.”
Brazil and Argentina are seeking to renew discussions on forming a common currency for financial and commercial transactions, Presidents Luiz Inacio Lula da Silva and Alberto Fernandez wrote in a joint article in a local newspaper on Sunday ahead of a regional summit taking place in Buenos Aires this week.
While the proposal aims to boost regional trade and integration of the neighboring countries, it faces numerous political and economic hurdles before becoming reality. Similar attempts in past decades failed to gather steam amid macroeconomic instability and government changes.
Argentina’s annual inflation of almost 100% compared to Brazil’s 5.8% and the fast depreciation of the peso in recent years are an immediate challenge to the idea of a common currency, among other different obstacles.
What Bloomberg Economics Says
“The idea of a single South American currency — or even one only for Brazil and Argentina — lacks in merit and has a poor timing. The region does not have what it takes to justify and sustain a single currency: there’s no labor and capital mobility, there’s price and wages rigidities in several countries, the business cycles are not synchronous, and most of the countries in the region do not have the fiscal space to afford the fiscal transfers that this kind of mechanism demands.”
— Adriana Dupita, Brazil and Argentina economist
Even if it’s hard to see a unified Argentina-Brazil currency any time soon, the idea still triggered a cascade of different comments on social media. Brian Armstrong, chief executive officer of Coinbase Global Inc., a publicly traded crypto exchange, suggested the South American countries should instead adopt Bitcoin in the long term.
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