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https://www.weforum.org/agenda/2023/03/what-do-talks-about-a-south-american-common-currency-say-about-globalization/

Argentina and Brazil recently announced preliminary plans to form a common currency known as the 'sur', meaning south, to be used in bilateral trade-related transactions in Latin America.

For the time being, it would not replace each sovereign nation’s currency, but would be used alongside their domestic money in an effort to reduce dependence on the US dollar. Forming a currency union à la the Eurozone in Latin America is not feasible for now but, in my view, this is not the real story.

Since the currency won't be as stable as the dollar, and because it won't be a real common currency like the EU, I don't really see the benefits of using such a currency. Is there any real benefit, especially economic, or is this a purely political move? What might be the pros and cons?

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  • Voted not to close as the questions are related and can be answered.
    – sfxedit
    Mar 5, 2023 at 5:02
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    Doesn't the quote state the pro: "reduced dependence on the US dollar"? And you then nicely summarize the cons. Also it's just plans right now. Mar 5, 2023 at 8:28
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    @Trilarion: I suppose the Q is if there's anything else [to say]. BTW, DW headlined "The sur: Argentina, Brazil put common currency plan on ice". Didn't read the rest of the piece. Mar 5, 2023 at 10:00
  • This type of currency should be roughly seen as a gold alternative. The US dollar currently acts as a gold alternative for a lot of countries, but this is unfair to every country that isn't the US. If one country imports more than it exports, it runs out of "gold" and then its currency becomes worth less "gold" which makes exports cheaper and imports more expensive, so imbalances easily correct themselves. Mar 7, 2023 at 17:31
  • (When the currency is used for daily life, like the euro, the imbalance cannot correct itself simply by updating exchange rates, and instead, every single person in the country has to update their prices and wages, which is mightily inconvenient and often causes imbalances to not be corrected at all) Mar 7, 2023 at 17:35

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It's not the issue that it won't be as stable as the dollar that's the main problem. But rather that the countries proposing to adopt it don't have much of an integrated/common market. The still have high trade barriers between each other, despite some other formal agreements (like Mercosur). Besides, Argentina doesn't even have a floating currency, while Brazil does etc. So most economists (even from the region) appear to have dismissed the talk/plan as utterly premature.

Also

The greatest attraction of a monetary union is that it reduces transactions costs as compared with a collection of separate national currencies. With a single money or equivalent, there is no need to incur the expense of currency conversion or hedging against exchange risk in transactions among the partners.

So introducing the 'sur' while keeping the other two currencies in place indeed has little value, unless the goal was somehow for it to eventually replace them. (See ECU that preceded the Euro.)

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