Brazil, Argentina and other countries could move towards a common “south American euro”, Brazilian finance minister Guido Mantega told Emerging Markets.
A new bilateral settlement system to be introduced between Brazil and Argentina in the second half of this year – which will bypass the dollar in most bilateral transactions – could be the first step to such a common currency, Mantega believes.
“This year we are going to move ahead with Argentina [in the direction of financial integration]. Bilateral trade will be done in local currency,” Mantega said. “In the second half of the year, we will have a local currency trade scheme in place.”
Far from feeling intimidated by the troubled external environment, the two largest South American economies are moving towards greater integration, Mantega said.
“In the future, the scheme may be extended to other countries in the region until we reach a common currency. In the future, we can do what the European Union has done. Our union is very similar to what is in place in the EU.
“One day we will have a south American euro with the same value and prestige.”
Under the new bilateral trade system, transactions will be completed in Brazilian Reais or Argentinean peso, at a reference rate. The difference in trade flows will be settled in dollars at the end of each day by the central banks of both countries. This will limit the use of the greenback to the minimum.
Central bank technicians have been ironing out operational details of the new clearing system, although officials at the bank would not commit themselves with any specific date for the implementation of the system.
Brazil and Argentina are the main protagonists in the embattled Mercosur, the incomplete Southern Cone customs union with Uruguay and Paraguay. Chile and Bolivia as associate members, while Venezuela’s membership has yet to be formally approved by the Brazilian Congress, against strong opposition to Chavez’ policies in the Brasilia-based Senate.
Bilateral trade between Brazil and Argentina has rebounded after a period of crisis at the beginning of the decade, with total flows approaching $25 billion last year, against just under $20 billion in 2006, mainly thanks to strong domestic demand in both growing economies.
Exporters and importers from each country would gain from the new system, as foreign exchange rate costs will be removed. The main significance of the move is political, though, especially at a time where the dollar has been depreciating fast.
A US bank executive commented, on condition of anonymity, that the prospect of a south American euro was a “delusion”.