Latin American nations seek to reduce dependence on the greenback

Several governments in Latin America have proposed creating a common currency as a cornerstone of efforts to reduce dependence on the US dollar in an attempt to increase regional integration and boost economic growth.

Led by Argentina and Brazil, the proposed currency, the sur — which means "south" in Spanish — would not replace the Argentine peso or the Brazilian real, but has been conceived as a currency for international trade.

The Brazilian and Argentinian governments believe creating a unique Latin American currency could promote economic growth and stability in the region by lowering costs for currency exchange and international trade, and make it easier for businesses to operate across borders. Such a move could also attract investment and jobs.

Fernando Haddad, Brazil's minister of finance, said at a news conference on Jan 22, "Bilateral trade (between Brazil and Argentina) is really bad, and the problem is precisely the currency, so we are looking for a solution, something in common that can make trade grow."

Argentina's President Alberto Fernandez said at the same news conference in Buenos Aires, the nation's capital, "The truth is that we do not know how a common currency between Argentina and Brazil could work, nor do we know how a common currency would work in the region, but what we do know is how economies work by depending on foreign currencies to be able to trade.

"If we do not dare to change, we will continue to suffer the same ills, and it is necessary to deepen the link between Brazil and Argentina, because this link is the one that will drive the whole of South America."

Brazil's President Luiz Inacio Lula da Silva has voiced support for the proposal. At a news conference during his visit to Argentina in January, he said, "If it were up to me, I would always have foreign trade, always with the currency of other countries so that we are not depending on the dollar."

Experts said the ambitious proposal has the potential to transform the region's economic landscape.

Joao Cumaru, a Brazilian researcher at Plataforma CIPO, an independent research institution, said, "Brazil, Mexico and the other developing countries have been working for some time to reform the governance mechanisms of the global financial and economic architecture so that they have a bigger voice and decision-making power.

"The use of the dollar as a currency that dominates all global trade patterns and exchanges has generated increasing annoyance."

Cumaru said the two nations have put forward a number of initiatives to reduce the dollar's dominance, including working with the BRICS nations (Brazil, Russia, India, China and South Africa) and putting currency swap agreements in place.

In addition to the proposed sur, Brazil and China recently agreed to use the yuan as their currency of choice for trade, bypassing the dollar. This move, seen as a major shift away from the greenback in global trade, could have significant implications for the world economy.

Henrique Reis, international relations manager at the China Trade Center Group in Sao Paulo, Brazil, said, "There is great expectation with this, because China has long wanted to internationalize its currency, and Brazil is a great partner of China."

Brazil and China are two of the world's largest economies, and using the yuan for trade could also help strengthen their economic ties and promote trade between the two nations.

These issues were discussed during Lula's visit to China this month.

Reis said that while the plan to make the yuan the currency of choice is not mandatory and will take some time to work, it has been well received by the market.

"China is our (Brazil's) main trading partner… so there is something very positive about a direct relationship between the real and the yuan," he said.

The dollar has long been the dominant currency for international trade — being used for a wide range of transactions, from oil and gas to agricultural produce and consumer goods. However, concerns have been voiced that Washington's recent economic policies and its trade disputes with other countries could undermine the dollar's status as the world's reserve currency.

Reis said, "Based on President Lula's speech at the inauguration ceremony for Dilma Rousseff, president of the New Development Bank, it is expected that Brazil will place more and more emphasis on this aspect of the dollar."

The writer is a freelance journalist for China Daily.