During this week we witnessed a new beginning in the economic-financial relationship with Brazil with the launch of the Common Currency. With this I want to express that from the formal launch of a virtual type currency between both countries, which will be called “South” because in these beginnings the “Euro” will not work as we know it in daily transaction but will be in principle as a currency of exchange without dependence on an extra-regional currency such as the US dollar, euro, yen or yuan.
Therefore, to better understand the value of the “South” it will be internal convertibility in Mercosur, which is relaunched after the contempt and mistreatment of the governments that preceded the current ones in both countries. We can provide a crude example, but it will serve to better understand the subject, in Argentina a SUR could be equivalent to $105 while in Brazil the convertible value should be R$ 1.5; This would provide a situation of greater stability in the prices of both countries and later in the region.
Knowing that the economies of Argentina and Brazil are complementary due to the level of industrialization that both countries have, while the rest of the block is managed mostly with primary economies based mainly on mining, which generates temporary stability until those natural resources are exhausted. or stop being consumed by the world as a result of climate change and its different derivations.
For example: Bolivia is managed with gas, oil and now lithium; Peru and Chile with minerals such as gold, silver and lithium; o Paraguay as it was lately with gas, oil and access to residences of citizens of other countries due to low level of taxation that, as in Argentina, after being approved on 12/28/2017, were placed on the AFIP list as countries with low or no taxation – what is generally called a tax haven.
But going back to the origin of this column, we can say that this virtual currency can collaborate with the drop in inflation in our country and together generate that the objectives set in the agreement with the IMF on the subject of international reserves continue to be met. BCRA as the strategic agreement that was signed at the 2008 Summit in San Miguel de Tucumán between both Central Banks of Argentina and Brazil that lost interest and meaning between 2016-2019. If this is done accordingly, it can establish an inflation floor lower than the 60% provided in the 2023 Budget based on the exchange stability that it will grant.
We are talking about a common but “not unique” currency, because each of the signatory countries will continue to maintain their currencies (peso and real) and the virtual currency at this time becomes for international transactions. In order to reach a single currency, it is necessary to resume the paths of harmonization/equalizing the financial + tax systems + accounting regulations that we had at some point and that can take a minimum of 5 or 6 years.
We must also be aware that we would be carrying out an inverse process to that carried out in Europe and we are going to have to review the powers of Parlasur so that, in the manner of the European Parliament, it can generate common laws that are ratified by the member countries instead of just making recommendations and they elaborate their own laws on the different topics. This is much more similar to the financial scheme that the BRICS had before our country joined than to the European Union.
by Fabián Medina, economist.