Is the recent proposal of the presidents of Brazil and Argentina to develop the Sur, a common currency that would serve first as a resource for bilateral exchange and, later, as a South American and even Latin American currency, feasible? It has been said that the Southern Common Market (Mercosur), composed of Brazil, Argentina, Uruguay, Paraguay, and Venezuela (the latter was suspended in 2019) would be responsible for this new currency. This currency is intended to transcend the dollar standard and reduce costs in the management of financial and commercial flows, although it would not replace the Brazilian real or the Argentine peso. Is Sur a chimera or an ideological or populist rhetoric? What have been the previous attempts to have a common currency in Latin America?

Previous failures

Different common currency projects have been conceived and proposed in Latin America for decades. All of them have failed. In 1964, the governments of Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua established the Central American Monetary Council (CMCA). Originally, in Article 4 of its founding agreement, there was talk of a common currency and a system of central banks. In 1974, they attempted to strengthen the project with the creation of the Central American Monetary Agreement (AMCA), and in 2002 the initiative was expanded and the Dominican Republic was added. Fifty-nine years later, the institutions still exist and are part of the Central American and Caribbean regional coordination structures. However, the common currency project has not materialized.

On March 31, 2009, Hugo Chavez, who started from the rhetoric of 21st-century socialism and in the context of the Second South America-Arab Countries Summit (ASPA), held in Qatar, proposed the creation of an international currency led by Venezuela: the Petro. “It will be a proposal for the major oil producers and the countries that have the largest reserves; Venezuela, the first in the world. The end has come to the dictatorship of the dollar”, he affirmed. But the petrocurrency was never forged.

In October of the same year, the member countries of the Bolivarian Alliance for the Peoples of Our America and the Peoples’ Trade Agreement (ALBA-TCP), i.e. Bolivia, Cuba, Ecuador, Nicaragua, and Venezuela announced the Unitary System of Regional Payment Compensation (Sucre), a payment system used for trade exchanges. Since its creation, the presidents of the ALBA countries (Hugo Chávez, Raúl Castro, Rafael Correa, Daniel Ortega, and Evo Morales) pointed out that because of its evolution, the Sucre System would consummate a common currency that would break the hegemony of the dollar. That never happened.

In 2017 and 2018, the president of Venezuela, Nicolás Maduro, resurrected the idea of the Petro to propose a cryptocurrency for his government. It would be guaranteed by future wealth, something, to say the least, very imaginative and excessively optimistic. This also did not come to fruition.

In 2019, the governments of Jair Bolsonaro and Mauricio Macri, adversaries and predecessors of Luiz Inácio Lula da Silva and Cristina Fernández, respectively, publicly stated their intention to create the Peso real for trade relations between their countries and with a view to developing it in the region. In a risky way, that currency would have been guaranteed by new taxes on exports, but Bolsonaro and Macri were electorally defeated in their countries and the project did not move forward.

Some criteria for feasibility

For any set of countries to seriously consider the development of an effective common currency, certain trade, economic, and political integration efforts must first be consolidated. In addition, these countries should maintain continuous growth levels, fiscal stability, inflation control, financial capacity, solid reserves and monetary value, and harmonious public policies.

This is not exactly the macroeconomic picture that has characterized Latin America for decades. Suffice it to recall, for example, that Argentina, historically anchored in statism, has economic indicators that are inferior and far from those of Brazil. In addition, Argentina faces an inflation rate of around 100%, its currency has undergone a sharp devaluation, it does not have competitive access to international capital markets and its monetary reserves have been significantly depleted.

The Sur and its low probability of prospering

As it is an incipient project, the technical details of this currency are not yet clear. However, its initial projection and the historical antecedents that frame it allow us to formulate some derivations.

For the moment, there is no prospect of Latin American governments unanimously wishing to transcend the use of the dollar. In fact, in response to the proposal from the Sur, the President of Mexico, Andrés Manuel López Obrador, stated that his country, with the second-largest economy in the region, will remain within the coordinates of the dollar standard. This is a very significant exclusion. It should be remembered, in turn, that Mexico is a member of the Pacific Alliance (PA) together with Peru, Chile, and Colombia. According to the Heritage Foundation’s Annual Economic Freedom Report 2022, the Pacific Alliance has greater openness, economic activity, and integration than Mercosur.

All previous Latin American projects to create currencies failed because the governments that led them sought to force the common currency as a vehicle to advance their ideological and political agendas, instead of optimizing integrative development. The proposal of Presidents Lula and Fernández is a new effort in the same direction.

The Sur, as a truly competitive common currency, does not seem viable in the short or medium term. Therefore, for now, at least, it seems to be a new chimera. One more episode of populism and ideological rhetoric in Latin American history.

*Translated from Spanish by Janaína Ruviaro da Silva