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Mercosur Common Currency: Viable or ‘Bombastic’ Proposal by Brazilian President – Pundit

(Xinhua/Alan Santos/Presidencia de Brasil)

In June, during his visit to Argentina, Brazilian President Jair Bolsonaro advocated the creation of the peso-real, a single currency for Argentina and Brazil, which could later extend to all Mercosur member countries. Mariano Francisco Laplane, UNICAMP economics professor, expressed his opinion on the initiative that has already provoked controversy among economists and was unexpected for the monetary authorities of the two countries.

According to Laplane, the announcement of President Bolsonaro is more an initiative with political-electoral objectives than a serious and technically feasible intention.

“A monetary union, if it is desired by the two countries, has to be preceded by a series of very complex measures of an institutional and fiscal nature in the two states, which require a lot of time and prolonged negotiations. None of this happened before the announcement; on the contrary, the announcement completely surprised the monetary authorities of two countries, both the Central Bank of Brazil and the Central Bank of Argentina”.

Long Process

Today, modern economic theory classifies four types of economic blocs: free trade zone, customs union, common market, and economic and monetary union – the most sophisticated kind of economic integration that cannot be achieved without going through the first three stages.

“Just to give an example, the adoption of a common currency in Europe, the euro, was the product of long negotiations and adjustments, where the Maastricht Treaty was first made and before that there had been a process of very deep economic integration, starting with trade, which had taken decades. The announcement by the Brazilian President, suggesting that this could be done immediately, this bombastic announcement, has no parallel with the adoption of the euro in the European Union”, the expert believes.

“Even in the case of the European Union, after the 2008 crisis and the crisis in Spain, Portugal and Greece, and even the decision of England, which was not even part of the eurozone, revealed that a monetary union must be very mature and very well-designed, since it means that countries give up the independent monetary policy. It’s not a trivial thing; it is a very deep integration agreement”, Laplane said.

Solidarity with President Macri

As a result, Laplane asserts that Bolsonaro’s announcement about the creation of a common currency throughout Mercosur is practically meaningless and would not work.

“I can interpret the announcement made in such a way and in an untimely manner, the public announcement, as aiming for electoral effects. Argentina is going into a presidential election in the coming months; the incumbent President Macri, these are not the best times in terms of politics. Argentinian economy is going through hard times as well. I think that the intention of President Bolsonaro is a bit clumsy, as is his style, and perhaps it was to express some kind of childish solidarity perhaps with the current president of Argentina”, Laplane thinks.

“In my opinion, this is not a mature, serious, technically evaluated and viable proposal. This is just a bombastic statement for electoral purposes”, he concluded.

Jair Bolsonaro stressed that a single currency would first be introduced in Brazil and Argentina and then extended to the entire South American continent. According to the Brazilian President, the matter has been analyzed since 2011.

Meanwhile, the country’s central bank has denied this information, stressing that it has no plans or studies in progress for a monetary union with Argentina.

There is only one monetary union of the full value in the world today. This is the Euro Area within the European Union established in 1999; 19 countries are part of the eurozone. SPUTNIK



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