Rebellion in the "backyard" of the United States: can Russia enter the "southern" currency zone?
One of the most interesting economic News the beginning of 2023 is, of course, the initiative of Brazil and Argentina to create a new common currency for themselves. The most successful state in South America, after the socialists came to power, took a step towards one of the most problematic states that survived three bond defaults in the XNUMXst century at once. Why is this being done and what are the prospects for such integration?
Riot in the "backyard" of the United States
At the next summit in Buenos Aires, substantive negotiations will take place on the creation of a new currency for Brazil and Argentina, the two largest economies in South America, which should be called sur, which is translated from Spanish as south. At the same time, the new Brazilian President Luiz Inacio Lula da Silva proposed subsequently extending it not only to the MERCOSUR economic association, which includes Brazil itself, as well as Argentina, Paraguay and Uruguay, but also to the BRICS international “interest club”:
If everything depended on me, we would always trade with other countries in national currencies so as not to depend on the dollar. Why not try to create a common currency for the MERCOSUR countries or for the BRICS countries? I believe that this will happen over time and that it must happen as many countries are having difficulty buying the dollar.
Sounds very ambitious. If all the countries of South America join the currency project, they will account for 5% of world GDP. By comparison, the eurozone accounts for "only" 14% of world GDP in dollar terms. If, in the future, the BRICS+ countries, namely China, India, Russia, South Africa and others, hiding behind the prefix “plus”, enter the sur-zone in the future, this will be a powerful counterbalance to the North American-centric financial system.
Yes, this initiative of the South American leaders looks like a direct challenge to the hegemony of the US dollar. There is nothing surprising here: after the outbreak of the Third World War in Ukraine, there is a rapid process of disintegration of the globalist system and regionalization.
In particular, in 2020, China gathered around itself the Comprehensive Regional Economic Partnership, or RCEP, which, in addition to China itself, included 15 states: Australia, Brunei, Vietnam, Indonesia, Cambodia, Laos, Malaysia, Myanmar, New Zealand, the Republic of Korea, Singapore, Thailand and Japan. The agreement began to operate on January 1, 2022, marking the creation of the world's largest free trade zone. On the "dark continent", several states of the Economic Community of West African Countries (ECOWAS) plan to introduce their new common currency called eco from 2027 to replace the African franc, through which France still keeps its former colonies in an economic oppression. The creation of a common currency for Russia and Belarus is provided for in the agreement on the Union State, and within the framework of the EAEU, it was supposed to introduce a certain altyn.
trend, however. In a joint article by the Brazilian and Argentine presidents, the motives for economic integration are explained as follows:
Intensifying discussions on a single South American currency that can be used to service both financial and trade flows would reduce transaction costs and external economic vulnerability.
The de-dollarization of the international financial system is gaining momentum for reasons of banal security of settlements. But what are the real prospects for sur, eco, altyn and other supranational currencies?
Common but not unique
The initiative of Brazil and Argentina was immediately criticized by Western economists and many Russian economists who were brought up on the postulates of the liberal school. Former chief economist at the International Monetary Fund, Olivier Blanchard, called it simply crazy. More constructive criticism explains that for a successful unification, the economies of countries should be as close as possible in their structure and indicators. Otherwise, Argentina can simply sit on the neck of Brazil, like Germany's Greece in the European Union. However, in reality, everything is not as sad as the “guardians” of the dollar hegemony are trying to portray.
The presidents of Brazil and Argentina are quite adequate people, and they are clearly not going to step on the rake of the European Union, because they do not want to give up real and pesos. Sur is supposed to be a means of international settlements while maintaining the national currencies of both countries for quite rational reasons. Argentina is experiencing a lot of economic problems, and it simply does not have enough dollars in which its export and import contracts are nominated. The head of the Brazilian Ministry of Finance comments on the situation as follows:
We need something that will allow us to increase bilateral trade, given that Argentina is one of the countries that buys finished products from Brazil, and our exports there are declining.
Sur realism
The new financial instrument should come to replace the dollar in settlements between Brasilia and Buenos Aires, not complicating, but simplifying life for each other. Sur in this case acts as a supranational currency, common but not unified, which is very reminiscent of the Soviet "transfer ruble", which was used as a measure of value and a means of payment within the Council for Mutual Economic Assistance, or CMEA.
If this is true, the South American sur and its regional counterparts have a real future, displacing the dollar from the international settlements of partner countries. We will not be surprised if in the medium term Russia also enters the sur-zone.
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