NewsIs Latin America ready for a common currency?

    Is Latin America ready for a common currency?

    The creation of a single currency for Latin America and the Caribbean returns to the geopolitical scene, and it is that several regional leaders have taken up the idea of ​​materializing this project that has been latent in the region for almost two decades.

    Although it is a matter that must overcome different stages and difficulties, beyond political sympathies, the proposal arises in a context that may be favorable for decision-making, especially after the presidential victories of Luiz Inacio Lula da Silva in Brazil and Gustavo Petro in Colombia, who are in favor of Latin American integration, to decrease inequality and improve the regional economy.

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    For this, instances such as the Community of Latin American and Caribbean States (Celac); the Common Market of the South (Mercosur); the Andean Community of Nations (CAN); the Bolivarian Alliance for the Peoples of Our America – Peoples’ Trade Treaty (ALBA-TCP); and the South American Union of Nations (Unasur), which, although it was almost dismantled by the conservative governments that dominated the region until recently, now seeks to rebuild it.


    A key position is that of Lula, who as elected president of Brazil – the largest regional economy and one with great global influence – has made it clear that a common currency would be essential for for Latin America to become independent of the dollar.

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    Added to this vision is that of the President of Mexico, Andres Manuel Lopez Obrador, who is also key, being the second strongest economy in Latin America. In addition, its geopolitical location has an impact on Central America and its neighbors to the North: the US and Canada.

    Towards the Southern Cone, the president of Argentina, Alberto Fernandez, a country of great influence in Mercosur, welcomes the project. However, his Chilean counterpart, Gabriel Boric, although he does not rule out the idea, is more timid when considering that it is a very complex issue“. Other actors such as Uruguay and Paraguay, with conservative governments, have not commented for the moment; while Bolivia could be closer to the idea, and Peru, in the midst of a governance crisis, is unknown.

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    A key factor is the position in favor of Colombia. On the subject, the president of the Congress of that country, Roy Barreras, was in favor of legislating to for Latin America to build a “common destiny” that could include “a single currency” that strengthens regional integration.

    Venezuela is also fundamental, the first country with the largest oil reserves in the world and other mineral resources, which for more than 15 years has promoted the use of a regional currency.

    Venezuelan President Nicolas Maduro recently said that “it would be extraordinary” for countries to debate the use of a single currency or a multi-currency system. In addition, he proposed incorporating crypto assets, since digital currencies are part of the current economic model.

    Is it feasible?

    The demonstrations in favor open the doors to a project that could position the Latin American community as a large economic and geopolitical power blocwhich in addition to being self-sustaining and complementary, would have the capacity to export energy, food, minerals, raw materials and a diversity of items.

    RT spoke with Charles Giuseppi, a Venezuelan political scientist with a master’s degree in International Economic Relations, to analyze in depth the feasibility of a common currency and the implementation of a single financial system.

    “To reach a proposal of this magnitude, something more than a promise is needed, political will is required and that it is not only from governments. It is necessary that the subject be the expression of the will of the Stateso that when a government ends its cycle, the monetary system is maintained and is not abandoned due to ideological or political differences, which would generate setbacks,” as happened with Unasur, alleges the specialist.

    On the fragility that a financial system based only on good political relations could mean, Giuseppi warns that the ideal is to raise the project based on an agreement of “harmonization of economic policies“.

    Before taking out the currency, he says, it must be created by consensus “a large economic research center“financed by governments, “to think long and hard, for at least two years, about how, when, where and under what conditions the common system will be born.”

    Along these lines, he comments that for the euro to be born, debates began in 1950 and it was only until 2001 that it was viable. “A single compensation system is a great challenge but not impossible and we can carry it forward”holds.

    Why is it a big challenge?

    Giuseppi explains that the common currency will be viable if governments are willing to overcome difficulties and riskssuch as assuming that they will have no control over domestic policies and that economic decisions will be made by the body that manages the regional system.

    This requires countries to agree to central bank policy harmonization and governments to abide by rules on equal termswhich could create internal conflicts in each country to attend to their particularities, especially in a region where the majorities are poor and unequal.

    In Latin America we have very dissimilar economies“That is why one of the difficulties, he adds, is to create a common monetary fiscal policy “which in itself is already a great commitment and a delicate matter for the States”.

    Only in the South American bloc, he explains, are there notable financial differences between countries. On one side are Argentina and Venezuela, which are currently suffering significant inflationary processes and de facto dollarization with their own internal characteristics; and on the other are more stable economies but with complexities such as Brazil, Paraguay, Peru, Uruguay, Bolivia, Chile, Colombia and Ecuador (which uses the dollar as its official currency).

    One way out, adds Giuseppi, is that Brazil take the lead and lead the harmonization of economic policies, because its model focuses on the “enormous” agro-industrial production, the strength of small and medium-sized industry, the export of food and energy resources.

    In order to “really think about the feasibility of the project”, one must also look at complexities such as the maturation of political, social and economic structures Of each country.

    Poverty and inequality: point in favor?

    According to the Economic Commission for Latin America and the Caribbean (Cepal), poverty and inequality in the region affect more than 200 million people.

    Giuseppi explains that precisely the poverty and inequality would be the common factor for the countries to integrate into a currency, in view of the fact that it would allow them to improve the income and quality of life of the disadvantaged sectors.

    “The majority of the population of Latin America is middle and low income, and the rich are more concentrated. That makes the region is the most unequal, which would favor to the use of a currency, because it would allow the homogenization of income and would benefit the poor”.

    How to do it?

    Giuseppi explains that monetary unification must incorporate a strategy that educates and generates confidence about the use of currencywhich could be called “Amazonian Peso”.

    “Currencies are a matter of trust and achieving this requires incorporating a great advertising and propaganda campaign that transmits strength. In addition, it requires the creation of a Latin American Central Bank that is in charge of harmonizing the use of the currency and that could be based in Uruguay”.

    This institution would also be in charge of directing the coexistence of that eventual “Amazon Peso” with the current Latin American currencies, which would continue to circulate in “a dual currency”.

    To support the common currency, countries could place their strategic reserves as collateral. “Latin American countries are powers in mineral resources such as oil, gas, lithium, copper, diamonds, gold, iron, so that Amazon Peso could compete strongly in the international arena”.

    The common currency, he adds, “would do the opposite of the dollar, which eats up and attacks the local currency. So, faced with depreciation and the increase in the cost of life, that currency would rescue our currencies“.

    Mexico and the regional blocks

    Giuseppi believes that the regional blocs have a fundamental role in creating the single currency, because they have an institutional platform that could allow it to be put into operation.

    “For example, the CAN, which predates Mercosur, has amendments and protocols that have been creating an institutional framework that could be used for implementation of currency.” Countries, he adds, should take advantage of and involve continental organizations such as Cepalto contribute ideas on the subject.

    Mexico is transcendental in this processwarns Giuseppi, because in addition to being the second largest regional economy, it shares borders with the United States. “No integration and unification project could advance without Mexico. It has a considerable industrial park, guarantees monetary stability due to internal demand, as well as than Brazil, and receives a large volume of remittances from the US”.

    Why not dollarize?

    Dollarizing, says Giuseppi, is a proposal that arises from ignorance. “The dollar may facilitate some transactions but it does not solve the problems. It is a currency that does not belong to us, that the United States controls, and to assume it is to enter into a structural dependency that would be impacted by the decisions of the Federal Reserve, its rates of interest and we would pass to a kind of monetary tutelage“.

    The expert indicates that dollarization only oxygenates the economy in moments of weakness, such as the hyperinflation suffered by Venezuela, but “does not produce wealth“.

    “Ecuador, for example, which tried dollarization years ago, continues with the same levels of poverty as before. What improved their living conditions were the social policies implemented by former President Rafael Correa,” the expert considers.

    In addition, the use of the dollar in daily life generates distortions in the economy, says Giuseppi. In Venezuela, for example, to buy something for 1.5 dollars, you must combine it with bolivars, buy another product that you don’t want to complete at 2 dollars, or receive a change candy.

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    “In peripheral countries, the dollar is a mirror currency, cannot exist without relying on a local currency, that support it and give it traversability. It has limitations in its operation and does not finish dominating the scene. The banknotes deteriorate and are rejected.”

    take with caution

    Giuseppi believes that the region must cautiously approach the challenge of the single currency. “It is a huge challenge that Latin Americans we must assume without shaking our handto fix our currency problems, give our currencies an upward push and get the economy back on track.”

    To achieve this, he adds, there are mistakes that cannot be madesuch as improvising, conditioning the project to political sympathies, using the dollar as a reference and not informing the population.

    Giuseppi adds that it is also necessary to review Euro experiences, which although it is the paradigm of monetary unification, is breaking up. “For this reason, any integration project must be viewed with great caution.”

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    Source: RT

    This post is posted by Awutar staff members. Awutar is a global multimedia website. Our Email: [email protected]


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