Economists laugh at the idea of a common currency in South America

Some of the world’s leading economists have ruled out creating a common currency for Argentina and Brazil, saying the idea pushed by the presidents of both countries faces too many practical hurdles to become a reality.

Mohamed El-Erian, chief economic adviser at Allianz SE and a Bloomberg Opinion columnist, wrote on Twitter that South America’s two largest economies are not in a position to make the idea successful given their current conditions and that the implementation of a currency common is “far from likely”.

John Barrdear, an economist at the Bank of England, said a monetary union between the two countries would be “ambitious” and former Chilean central bank president José De Gregorio said Brazil would risk its sound monetary policy by pegging its currency to Argentina: “It has no a lot of sense,” he told Radio Infinita.

Olivier Blanchard, former chief economist at the International Monetary Fund, called the proposal “far-fetched,” while former US Treasury Secretary Larry Summers called it “highly problematic given the differences in the economies.”

Brazil and Argentina seek to resume discussions on the formation of a common currency for financial and commercial transactions, presidents Luiz Inácio Lula da Silva and Alberto Fernández wrote on Sunday in a joint article published in a local newspaper ahead of a regional summit that will take place in Buenos Aires this week.

Although the proposal aims to boost regional trade and the integration of neighboring countries, it faces numerous political and economic obstacles before becoming a reality.

Similar attempts in past decades failed to gain momentum amid macroeconomic instability and changes in government.

Argentina’s annual inflation of almost 100% compared to Brazil’s 5.8% and the rapid depreciation of the peso in recent years are an immediate challenge to the idea of a common currency, among other obstacles.

WHAT BLOOMBERG ECONOMIST SAYS

“The idea of a single South American currency, or even just one for Brazil and Argentina, lacks merit and comes at a bad time. The region does not have what it takes to justify and sustain a single currency: there is no labor or capital mobility, there are price and wage rigidities in various countries, economic cycles are not synchronous, and most of the countries in the region do not have the fiscal margin to deal with the fiscal transfers demanded by this type of mechanism”.

— Adriana Dupita, economist for Brazil and Argentina

Although it is difficult to imagine a unified Argentine-Brazilian currency in the short term, the idea triggered a cascade of different comments on social networks.

Brian Armstrong, CEO of Coinbase Global Inc., a publicly traded crypto exchange, suggested that South American countries should embrace bitcoin for the long term.

With information from Bloomberg