One more time The idea of implementing a single regional currency arises from Brazil. Almost two years after the version that the governments of Jair Bolsonaro and Mauricio Macri were studying the possibility of moving towards a common currency between both countries —it was even mentioned that it would be called Peso-Real—, the proposal flies over again, although with a peculiarity: on this occasion, its promoter is none other than Luiz Inácio “Lula” da Silva.
The former president of Brazil and who leads the polls ahead of the presidential elections to be held in October exposed on Saturday the need to create a common currency for Latin America. “We don’t have to depend on the dollar,” he said..
The The idea of a single Latin American currency was even addressed by two economists close to Lula in a recent article published in the Folha de São Paulo newspaper.. There, Gabriel Galípolo, former president of Banco Fator and who has collaborated with the government program of Lula, and Fernando Haddad, former mayor of São Paulo and today the PT’s candidate for state governorship, defended the single currencyin a model similar to that of the European bloc with the euro, as a way of increasing regional integration and strengthen the monetary independence of the region.
But the possibility of moving towards a common currency does not seem to be echoed in these latitudes. Although it even transpired that it would be called “Sur” and that, according to the text of Galípolo and Haddad “it would be issued by a South American central bank” after an initial capitalization carried out by the member countriesinside of the The Argentine government’s economic team downplays the issue.
“It is a more political than technical definition,” the Central Bank apologizes. “There is nothing, there is no opinion on that initiative,” they complement from the Ministry of Economy.
The reason for this can perhaps be found in the fact that, according to economists, the possibility seems very remote today, taking into account the multiple economic imbalances that should be corrected before moving towards a common regional currency. In off the record, Analysts dismiss the possibility and even point out that it is a proposal that could not be applied for at least a decade.
For Joaquín Pastor, an economist at the consulting firm P&L advisors, the project “could be very efficient for the economies that make up the common monetary area” but he warned that for this it is necessary to meet certain conditions that today are far from being met.
Among them, he pointed out that the member economies should have a similar structure, be exposed to the same macro drivers and suffer the same shocks. For it to work well, he added, there should be mobility of factors of production, especially labor. Also flexibility of prices and salaries and fiscal discipline.
“If everything worked happily and these conditions were met, Argentina would benefit a lot. You sacrifice monetary policy but you increase trade and regional integration generates better institutions,” he considered.
Despite this Pastor recalled: “In Europe it took many years to converge legislation and exchange schemes before launching the euro.”
A similar diagnosis was made by Adrián Yarde Buller, chief economist at Facimex Valores. “It is an interesting idea to deepen regional integration and our economy would clearly benefit from a currency that can function better as a unit of account, especially considering that inflation will be higher than 60% this year,” he analyzed. Despite this, he stressed: “These are measures that are very difficult to reverse, so this may not be the best time to negotiate something like this and we will have to wait until we have a position of greater relative strength.”
Francisco Ballester, director of MindY-economics, recalled that a single currency in the region would have benefits —especially in some countries— but also negative issues. “For Argentina, the main benefit is that it would ‘import’ the credibility it lacks from the rest of the region. It would be a quick way to lower inflation,” he analyzed.
However, and in tune with his colleagues, he pointed out: “In the medium term, the question is whether the countries of the region meet the typical conditions needed to share the currency: free mobility of employment between the different regions and a supranational fiscal authority that can compensate for the differences between shocks that affect different countries”.
And in this regard, he said: “These last two factors do not exist. There is no higher fiscal entity and, for cultural and distance reasons -the distances are much greater here than in Europe, for example-, I think it is difficult to see a great increased labor mobility.
By last, Pastor added that if this proposal is executed, “the problem is that a crisis comes later and if the countries are not fully integrated, the common currency limits you a lot“. And he recalled: “This was part of the discussion in the European Union during the crisis. The Greeks said ´if we could devalue we would be better´”.
A story that repeats itself
Already in a paper written in 1999 Eduardo Levy-Yeyati and Federico Sturzenegger, whoWho would later have their respective experiences in the Central Bank, had wondered, in light of the European experience, whether a common regional currency was a good model for Mercosur.
In said work, heo Economists found that at that time the preconditions for a currency area were not present in Mercosur from the point of view of the traditional optimal currency area theory (GOOSE). On the other hand, the text concluded that, From the point of view of credibility, and unlike the European model, the lack of an anchor country in the region stood out, which suggests the convenience of a monetary union that would include the US.