Many were surprised by the announcement made this week, during the Argentine-Brazilian summit in Buenos Aires, of a new common currency which, in principle, would not imply the disappearance of either the Peso or the Real. This should come as no surprise: the ‘Sur’, as it would be called, would be an accounting instrument rather than a tangible currency. It would therefore be an index whose value would always be different from that of its component currencies and would be calculated on the basis of a basket of the same currencies and/or commodities. Currencies of this type, in principle, usually serve to promote and speed up intra-regional trade, but also to protect vulnerable and indebted economies from the ups and downs of the international financial system.
Although it is a monetary instrument that would be very well adapted to the structural problems of South America (currency fluctuations, difficulty in acquiring strong currency, higher exchange rates, etc.), it is not a South American invention. There are many precedents, and it is often forgotten that a currency has three basic functions: to facilitate the exchange of goods and services; accounting, and savings. The so-called ‘units of account’ are ‘currencies’ that have been assigned a referential function not necessarily associated with exchange or savings: that is why there can be the apparent paradox that a common non-current currency coexists with the national currencies that feed it.
The oldest ‘currency of account‘ that exists right now is not associated with an integration process: it is the Spatial Drawing Rights (SDR) of the International Monetary Fund (IMF). They have existed since 1969 and their value is calculated on the basis of a basket of strong currencies: Dollar, Euro, Pound, Yen, and Yuan. They basically have a protective function against inflation. At the beginning of the century, there was an attempt to convert the SDR into an international reserve currency to the detriment of the dollar, but it did not succeed. What did evolve, however, was the best-known common currency, the Euro. Although it currently has a triple monetary function, its predecessor, the European Currency Unit (ECU), never circulated: it was limited to being a reference in the European space.
Perhaps that is why, when the ECU became the Euro, it was installed in the global collective subconscious as an example to be followed. In many parts of the world where integration processes were underway, common currencies were designed which, often, began as accounting instruments, i.e., non-current currencies. In Africa, for example, a process began in 1999 – which was to have been completed by 2020 – aimed at creating the Afro: by 2023, only three of the 55 members of the African Union had approved the project. Currently, the monetary convergence that seems most likely in Africa would be the ECO, the decolonizing currency of the West African Economic Community, which was launched in 2001.
At the beginning of the century, in South Asia (India) and in the Eurasian Union, failed projects for common currencies also circulated (respectively, the Rupa and the Altyn). Far from there, but also in Asia, in 2005 the Japanese government promoted the AMU, an index calculated on the basis of a basket of up to 13 currencies in the area, which includes the Yen and the Yuan and which, to this day, continues to be calculated despite the tensions between Japan and China. Finally, Latin America was not left out: currently, seven ALBA countries (Antigua and Barbuda, Bolivia, Cuba, Dominica, Nicaragua, St. Vincent, and the Grenadines, and Venezuela) trade with each other using the SUCRE, a clearing system promoted in 2008 to bypass the dollar.
The most challenging, however, is yet to come: the ‘Sur’ is only the South American expression of a more global phenomenon. In fact, the international monetary order has been cracking for years, and it is not just about the Petroyuan or technological innovations (cryptocurrencies, CBDC, etc.). Global Debt (and currency is an acknowledgment of debt) now amounts to $300 trillion, equivalent to 349% of global GDP. In this context, countries have less and less room to maneuver. In addition, the pandemic and the war in Ukraine have aggravated the situation. The dollar, as an international reserve currency, but also as a currency of credit and exchange, is becoming less and less attractive, which is why so many alternatives are being sought.
And what are the countries seeking alternatives looking for? Well, on the one hand, to avoid the dollar in international trade transactions (by revaluing their own currencies and eliminating unnecessary exchange costs). On the other hand, to reduce vulnerabilities, especially for those countries that have contracted debts (and therefore pay interest) denominated in dollars. The model that has been imposing itself is compensation systems that try to flee from fiduciary rules; promote regional (and not global) alignments of monetary policies and in the context of a ‘New World Energy Order‘, revalue the possession and export of strategic raw materials, as is the case of almost all Latin American countries.
Fernando Haddad, Brazil’s current Minister of Economy published less than a year ago an article in which he not only openly called for the creation of a common South American currency, he suggested the creation of a Central Bank to manage it and placed the experience of the Brazilian Real Plan as an eventual reference. In August, this year, at the BRICS summit to be held in South Africa, the ‘R5‘ is likely to be launched, a shared index that should coexist with the ‘Sur’, as the ‘Sur’ will with the Real. In fact, the central idea seems to be geared toward each BRICS member promoting its own monetary network, based on the same principles, in its area of influence: quite a challenge to the long-lived hegemony of the dollar.
In the days following the public announcement of the ‘Sur’, many analysts in the Global North were quick to criticize the proposal. Most of the more serious arguments (different scales of the Brazilian and Argentine economies; a different position of both in the international economy; failure of similar initiatives in other regions; etc.) tended to be based on very formal perceptions of what a currency is. The road ahead to the ‘Sur’ is a winding one. However, it should be rethought in light of the geopolitical context in which we move: the governments’ ability to maneuver is increasingly compromised by indebtedness and fluctuations that are at the root of many ills. Let’s look at the ‘Sur’.
*Translated from Spanish by Janaína Ruviaro da Silva