On Monday, Brazil and Argentina, through their leaders, said that they would launch a common currency. It is also stated that this common currency will boost trade by eliminating conversion costs and exchange rate uncertainty.

Brazil and Argentina could later expand the initiative for neighbouring countries, creating the euro-type currency for South America. The leaders of Brazil and Argentina are also attempting this Euro-type currency for use in all South American countries.

The countries' leaders, Luiz Inacio Lula da Silva from Brazil and Alberto Fernandez from Argentina, said that a common currency would help boost South American trade in a joint statement published in the newspaper Perfil on Monday local time.

Brazil wants to call the common currency the "sur", which means "South", and the two countries are planning to eventually allow other South American countries to use this and create the world's second-largest currency bloc.

Brazil and Argentina to Discuss Common Currency for Latin America, but also to Boost Regional Trade

"We intend to overcome barriers to our exchanges, simplify, and modernize rules so that this can promote the use of local currencies. We also decided to advance discussions about a common south American currency,” said Luiz Inacio Lula and Alberto Fernandez.

That could be used for both financial and commercial flows, and the two country leaders added that this would help reduce operational costs and external vulnerability. 

The moves they are making are those to support the "de-dollarize" or move away from using the greenback in commerce. In parallel to the Brazilian real and the Argentine Peso, it would be more effective if used for bilateral trade between Latin American countries. 

This will chip the initial dominance of US Dollars, which are used in 06% of trade transactions between the two countries. However, the focus of attention now is that common currency can spread economic shocks between countries that have adopted them. 

For example, Argentina is experiencing super annual inflation, which is at 95%, which could impact Brazil. However, the positive side is that this will help commercial flows and reduce operating costs. 

This condition then helps regional trade to become more sustainable. The joint negotiation of balanced trade agreements responds to strategic development objectives.

This Means They Will Cut Reliance on US Dollar, But Is This Possible?

After decades of maintaining respectful economic boundaries, Brazil and Argentina, neighbouring countries, said they would take their relationship to the next level. 

This condition will also bring an invitation that helps the world currency bloc. The new currency is also said to help the economy to soar even more. 

The two nations who will also be present at the 33-nation summit of Latin America and Caribbean states noted that the rollout being carried out would help pursue the realization of the project that is being carried out.

Further discussions have already begun between the two central banks, and measures of the economy and fiscal policies will also be taken up. The DI summit will invite other Latin and South American members to help realize the largest currency union outside the eurozone.

However, the apparent target set by Brazil and Argentina is to reduce the use of the US Dollar. But many are also sceptical regarding the creation of a common currency. However, if the inflation of Argentine is still high, it is not easy to succeed.

On the other hand, Brazil has a reasonably stable economy. So many say that deciding to form a common currency is wrong. But Brazil is still determining what they will do.

Brazil and Argentina say that their plans to use a common currency are more precise. This followed the news that they had held discussions. But furthermore, the issue of Argentine inflation is something that cannot be ignored.