A currency for South America?
Before the CELAC summit, Brazilian president Inácio Lula Da Silva met with his Argentinian analogue Alberto Fernández. This is Lula’s first official visit since he was sworn into the presidency last year. This meeting was notable after it was revealed by the Financial Times that both parties were planning to start talks regarding the possibility of a common currency for their countries. This proposal has been floating around Brazilian politics for some time. In 2022, the finance minister of the Lula government, Fernando Haddad published an essay in Fohla do São Paulo, a national newspaper, where he first proposed the policy. Similarly, Lula has also signalled his willingness to embark on this project during the last presidential race.
This proposal does not imply that Brazil and Argentina seek to replace their national currencies like the European Monetary Union. Instead, this new currency would exist alongside the Brazilian Real and the Argentinian Peso and would serve a very specific purpose. As Haddad details in the aforementioned essay, the new common currency would be called the Sur and would be a “south american digital currency capable of strengthening the region”. The Sur would be a third currency that would mediate trade and investment between Brazil and Argentina.This proposal is a geopolitical project that has two objectives. On the one hand, it would be used as a way to facilitate trade between both parties and thus strengthen ties and growth in the region. On the other hand, the Sur would also serve as a geopolitical tool to displace the dollar’s dominance over international trade. The US Dollar has enjoyed a privileged position in international monetary relations since the end of the Second World War. Lula and Fernández would seek to present the Sur as a reserve currency for trade and investment in South America.
In the medium to long term, the Sur would be open for adoption for other countries in the region. Argentina and Brazil would inaugurate the new currency because of their strong commercial ties.
The rationale for adopting this proposal is clear on both sides. For Brazil the potential benefits are political and geostrategic. If this project is implemented, the Lula administration can reposition Brazil as the regional power of South America. For Argentina, the Sur can provide an avenue to render its economy significantly more attractive to foreign trade. Trade with Brazil would become more seamless and the international market could lean on the new currency to shield Argentinian commerce from the country’s macroeconomic troubles. The essay detailing the proposal has also mentioned how the Sur could be used as a shield against volatility and speculative attacks on the international market.
International and national reactions to this proposal were mixed. Some economists have expressed concern over the measure. Brazilian economists have called the project unrealistic and misguided. By the same token, international leaders have also rejected the project. The president of Mexico Andrés Manuel López Obrador has also expressed his disapproval for the measure: he said that his country would seek to keep the dollar as the world currency for trade. Others, such as Venezuelan president Nicolás Maduro have signalled full approval for the proposal. The president of Chile, Gabriel Boric has not yet commented on the proposal but did express his approval for financial integration of South America last year. During Lula’s previous administration, Brazil and Argentina pursued a similar project of financial integration for the development of Mercosur. It seems that Lula is seeking to reestablish Brazil’s presence regionally. Will the political cohesion of South America after the so-called pink wave of left-leaning governments provide the momentum necessary for this proposal to see the light of day regionally?
As we look to Brazil and Argentina’s future we should keep in mind:
Both Lula and Fernández have expressed that the proposal implies intention to pursue the project instead of a formal announcement. It is unlikely this project will come to fruition due to its long term nature. To see full implementation we would need to see full adoption for both countries and a willingness to continue its use after the Lula and Fernández administrations.
We can expect certain elements of the private sector in both countries to push back against the adoption of this proposal. For Brazilian and Argentinian stakeholders in international trade the opportunity cost of continuing to carry out transactions via the Dollar would not encourage the adoption of the Sur.