Argentinian Foreign Minister Santiago Cafiero has expressed his enthusiasm for a Latin American common currency. Speaking about the benefits that such a currency could bring to Argentina and the wider region, he said that it would relieve the stress caused by a shortage of foreign reserves and the resulting devaluation of the country’s fiat currency. Argentina has been hit by a reduction in its reserves in dollars, which it needs to use to pay for imports. The country has attempted to mitigate this problem by shifting to the Chinese yuan for bilateral settlements with China.
The idea of a common currency for Latin America was originally put forward by Brazilian President Lula as part of his election campaign. He suggested that the currency could be used to connect Brazil with other countries in the region and reduce the prevalence of the US dollar. Initially, the plan was for the common currency to replace the fiat currencies of several countries in the region, with Brazil and Argentina leading the charge. However, the more recent discussions between the two countries at the CELAC commitment resulted in a more limited proposal. The currency would be used for settlements between members of the Southern Common Market and the BRICS bloc.
While the proposal is still in its early stages, it is clear that there are potential benefits to be gained at both the national and regional levels. A common currency could reduce transaction costs, making it easier to trade with other countries in the region. It could also provide a safeguard against fluctuations in the value of individual fiat currencies. However, there are also potential drawbacks. For example, countries may lose some of their monetary policy independence, and may have to sacrifice some control over their monetary policy to a central authority.
While the proposal is an intriguing one, it remains to be seen whether it will be viable in practice. It will require close cooperation between the member countries, and it will need to be carefully managed to ensure that it does not lead to unintended consequences. However, if successful, the common currency could provide a path to greater economic integration between Latin American countries, which would benefit all of them in the long run.