Brazilian president Ignacio Lula da Silva wishes for a common currency in South America. Here’s why it is highly unlikely that will never happen.
The two biggest economies in South America hinted on a major financial shift earlier this week. Brazil and Argentina started preparatory work on a common currency that would later be extended to the rest of the continent.
The common currency, possibly called “Sur”, South, would be the second biggest in the world after the Euro. It would make up 5% of global GDP, compared to the 14% of the Eurozone.
The goal of the Sur would be to reduce dependency from foreign currencies in South America. The continent has always been under the influence of the dollar, which kept Latin America largely under US control.
This has also caused widespread crises: Argentina, for instance, is trapped in constant circles of defaults, the latest of which was in 2020.
South America is currently politically homogenized, with every country being ruled by a leftist coalition. The new entry, Brazilian president Ignacio Lula da Silva, wants to take advantage of this situation.
Lula won the election in October 2022 and immediately started his term with a strong foreign policy. He wants to create a “commonwealth of rainforests” with Congo and Indonesia, which would encompass over a third of the World’s rainforests. Now, as we saw, he strives for a common currency in South America.
However, not everyone shares his enthusiasm.
A hopeless proposal?
Enthusiasts of a common currency between Brazil and Argentina point at the increasing trade between the two countries. Indeed, in 2022 it increased by 21% year-on-year. MERCOSUR, the continent’s biggest trade bloc which includes Paraguay and Uruguay as well, was truly a considerable success.
Critics, however, claim that this is probably just a diplomatic move by Lula to improve relations with his Southern peers.
Realistically, a South American common currency would come years after Lula’s own passing, if at all. It took 35 years to create the Euro, and it was born on top of an already large and thriving Union.
South America lacks the macroeconomic unity that Europe has since the end of World War II. Furthermore, it took several generations for Europe to agree on a general political coordination.
Instead, Argentina is due for elections in 2023, and there are a lot of signs pointing at a victory of the center-right. Hence, Brazil and Argentina will find themselves on opposite sides of the political fence, and the Sur will hardly be a priority.
Finally, South America is Washington’s political backyard. It is hard to think that the United States will give up their huge economic influence over an entire continent. It must be remembered that the US never shies away from backing a coup d’etat in South America whenever a country goes against their interests…
The Sur might gain Lula some important diplomatic points, but it is highly unlikely that it will ever become reality.
