n July 29, the finance ministers of Brazil and Argentina, both member states of the Southern Common Market (or Mercosur, the other two being Paraguay and Uruguay), announced that the four will set up a special group to assess currency unification, marking the first step on this front, reported The Beijing News
Writing in the newspaper, Cao Ting, associate researcher with the Institute for Latin American Studies, China Institutes of Contemporary International Relations, noted that by advancing currency unification, the South American trade bloc will no doubt shore up its organizational vigor and outsiders’ confidence, yet truly achieving this target will take a long process.
As modern economic theories have it, currency alliance is the forth, most advanced stage in regional integration – it means that members will surrender their independent monetary and credit policies to a joint policy-making body. It took about four decades for the euro to come to fruition from being proposed, Cao wrote.
Mercosur now is in the common market stage, one step lower than a currency alliance. Besides, in recent years, due to the changes in the regional political ecosystem and the differences among member states, its development has stagnated, confronting several challenges.
For one thing, the organization erects relatively high tariff barriers against other countries, shutting itself out of world trade. For another, it was also haunted by division. Trade frictions, including differences and conflict of interest, have broken out among its members from time to time.
And the announcement also has political considerations, she said. With a general election to take place in October, Argentinian president Mauricio Macri will stand as a presidential candidate for the center-right ruling party. He is eyeing giving himself a boost in elections, Cao wrote, citing Brazilian economist Mariano Francisco. Jair Bolsonaro, Brazil’s president that shares most of Macri’s political ideas, is likely acting to give him a hand.
Given its member states are experiencing sluggish economic growth, they should pay more attention to drafting domestic policies and strengthening regional cooperation to spur economic growth, thereby laying a solid foundation for unifying their currencies in the long run, she suggested.