With the proposal already placed on the table for the development and circulation of a common currency between Brazil and Argentina, it returns to the geopolitical and economic scenario, such an initiative that already registers a precedent with the Sucre.
As we pointed out on a previous occasion, different experts and personalities have debated and expressed their opinion on this initiative, which could undoubtedly mark a before and after in Latin American economic history. On this occasion, through a review of an RT article that addresses whether Latin America is really ready for a common currency, we collect the most interesting points that RT shared from an interview with Charles Giuseppi, a Venezuelan political scientist with a master’s degree in International Economic Relations.
First, It should be noted that despite dealing with a matter that must overcome different stages and difficulties, beyond political sympathies, the proposal arises in a context that could be favorable for decision-making, especially since now they are presidents Luiz Inácio Lula da Silva in Brazil and Gustavo Petro in Colombia, who are in favor of Latin American integration, to reduce inequality and improve the regional economy.
tailwinds
An important point to analyze about the context in which this new proposal is found is the key position of Lula, who as the 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 Latin America to become independent of the dollar.
Likewise, he mentions that that vision is added to that of the President of Mexico, Andrés Manuel López Obrador, who is also key, being the second strongest economy in Latin America, and with a geopolitical location that impacts Central America and its neighbors to the North: USA and Canada.
Towards the Southern Cone, the president of Argentina, Alberto Fernández, 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 considering that it is a “very complex” issue. Other actors such as Uruguay and Paraguay, with conservative governments, at the moment do not speak out; while Bolivia could be closer to the idea, and Peru, still in the midst of a governance crisis, is unknown.
Is it feasible?
It is this sense, It is worth mentioning that the demonstrations in favor of this proposal open the doors to a project that could place the Latin American community as a great block of economic and geopolitical power.the only one behind the eurozone, as mentioned by the Financial Time (FT) portal, and which, in addition to being self-sustaining and complementary, would have the capacity to export energy, food, minerals, raw materials and a diversity of items.
According to Charles Giuseppi, to come up with a proposal of this magnitude, something more than a promise is needed, that is, according to him, political will is required and that it is not only from governments. “It is necessary that the issue be the expression of the will of the State, so 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 regression”as happened with Unasur, the specialist claimed.
Having said this, Giuseppi warns that regarding the fragility that a financial system based only on good political relations could mean, the ideal is to propose the project based on a “harmonization of economic policies”.
Suggests that before taking out the coin, it must be created by consensus “a great economic research center” funded 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”, explained.
Along these lines, he commented that for the euro to be born, debates began in 1950 and it was only until 2001 that it was viable. “A unique compensation system is a great challenge, but not impossible and we can carry it out”holds.
Why is it a big challenge?
Giuseppi explained that the common currency will only be viable if governments are willing to overcome difficulties and risks, such 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.
In other words, it points out that this requires countries to approve the harmonization of central bank policies and that governments abide by rules on equal terms, which creates the risk of creating internal conflicts in each country to address their particularities, especially in a region where the majorities are poor and unequal.
“In Latin America we have very dissimilar economies”Giuseppi mentioned, pointing out that one of the difficulties will be creating a common monetary fiscal policy.
Only in the South American bloc, he explains, are there notable financial differences between countries. On the one hand, there are Argentina and Venezuela, which are currently suffering significant inflationary processes and de facto dollarization with their own internal characteristics; and on the other, there 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, Giuseppi adds, is for Brazil to take the lead and lead the harmonization of economic policies, because its model focuses on “enormous” agro-industrial production, the strength of small and medium-sized industry, the export of food and energy resources.
To “really think about the feasibility of the project”complexities such as the maturation of the political, social and economic structures of each country must also be observed.
Why not dollarize?
In Giuseppi’s opinion, Dollarizing 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 move on to a kind of monetary tutelage”said.
Secondly, Giuseppi pointed out that dollarization only oxygenates the economy in moments of weaknesssuch as the hyperinflation suffered by Venezuela, but “does not produce wealth”he clarified.
“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”commented the expert.
Additionally, Giuseppi mentioned that the use of the dollar in daily life generates distortions in the economy. “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 piece of candy for change”he expressed.
“In peripheral countries, the dollar is a mirror currency, it cannot exist without depending on a local currency, which supports it and gives it transitability. It has limitations in its operation and does not finish dominating the scene. Banknotes deteriorate and are rejected “he added.
To treat it with care
Giuseppi believes that the region must cautiously approach the challenge of the single currency. “It is a huge challenge that we Latin Americans must take on without shaking our hands, to solve our monetary problems, give our currencies a boost and get the economy back on track”held.
To achieve this, he stressed that there are mistakes that cannot be made, such as improvising, conditioning the project on political sympathies, using the dollar as a reference and not informing the population.
Finally, Giuseppi added that it is also necessary to review the experiences of the Euro, which, although it is the paradigm of monetary unification, is fracturing. “Therefore, any integration project must be viewed with great caution”he concluded.
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