The actual proposal is far more modest, observers said, but could go a long way to alleviating trade-related pains in the region.
So what is on the table?
Brazilian Finance Ministher Fernando Haddad told reporters that initial discussions focused on how to aid Argentina in buying Brazilian exports without drawing down its meager dollar reserves,
, rather than creating a shared currency that would circulate in both countries.
So rather than a shared currency comparable to the euro, what is being discussed is the creation of a unit of account that would help facilitate trade, said Monica de Bolle, a senior fellow at the Peterson Institute for International Economics, in a phone interview.
Trade between Brazil and Argentina is largely denominated in U.S. dollars. The problem is that Argentina doesn’t have much in the way of dollar reserves, so it has put in place a number of capital constraints, which has had a big impact on Brazilian exporters, de Bolle explained.
The best comparison would be special drawing rights, or SDRs, the supplementary foreign-exchange reserve assets created and maintained by the International Monetary Fund, she said. The value of an SDR is based on a basket of international currencies.
The value of any unit of account created by Brazil and Argentina could similarly be based on a basket of currencies, potentially including the Argentine peso Brazilian real and the U.S. dollar though that is one of many issues that would need to be worked out.
“This is a long-term effort…I would say they have at least a year’s worth of work on this, assuming they can keep the focus,” de Bolle said.
