Argentina and Brazil inching closer to common currency for trade

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Argentine President Alberto Fernández and his Brazilian counterpart, Luiz Inácio Lula da Silva, have pledged to develop a framework for using their own currencies in bilateral commerce amid a rising trend of many nations dumping the US dollar in trade transactions.

Last month, Lula called on countries of the Global South to work toward ditching the USD in their international trade and resort to their own currencies instead. 

The two left-wing presidents of MERCOSUR's two main Southern Common Market partners gathered in the Brazilian capital on Tuesday to discuss measures to expand trade.

“The meeting was long, difficult and we will carry out many more meetings,” Lula said alongside Fernández when speaking to the press.

“I made a commitment to my friend Alberto Fernández that I will do every and any sacrifice so we can help Argentina in this difficult moment.”

“They’ve made the decision to help make sure that Brazilian companies continue exporting to Argentina and they had asked us to do some homework, which we have already done, and have to do with the necessary guarantees,” Fernández said.

Brazil’s Deputy Minister of Economy Gabriel Galipolo stated that the plan involves a line of credit to finance Brazilian companies that export to Argentina to avoid using the dollar. 

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Galipolo stated that his administration advocated the establishment of a special line of credit for Brazilian enterprises exporting to Argentina in local currency in order to preserve the flow of bilateral commerce between the two Latin American economic giants.

Abandoning US dollar

In an interview with the local GloboNews network, the official went on to say that using the US dollar for commerce has cost the country billions of dollars.

“In the last five years, due to Brazil’s lack of mechanisms to finance its exports and Argentine imports, we have lost approximately $6 billion of space in the trade balance with Argentina to China, which has been providing financing mechanisms in alternative means of payment, such as swaps, or giving credit to the exporter,” Galípolo highlighted.

Argentina and Brazil aim to employ a mechanism similar to the swaps with China for international commerce under the new deal, which will remove the dollar as a payment currency.

Argentine importers will therefore be allowed to pay in pesos, while the Brazilian government will convert payments for trade transactions into reais.

The move comes amid efforts by an increasing number of countries across the world to abandon the US dollar in favor of trading partners' indigenous currencies. As more countries abandon the dollar, the worldwide trend of substituting local currencies for the US dollar in commercial transactions accelerates.

Argentina declared last week that in order to protect its foreign reserves, it will pay for Chinese imports in yuan rather than dollars.

After a meeting with Chinese Ambassador Zou Xiaoli, Massa asserted that "Argentina must keep its foreign reserves robust" after the worst drought in history.

Argentina plans to pay for almost $1 billion in Chinese imports in yuan rather than dollars in April, and approximately $790 million in monthly imports will be paid in yuan thereafter, according to a government statement.

It is noteworthy that earlier this month, Lula officially announced Brazil's return to UNASUR. In 2019, the Brazilian government of then-President Jair Bolsonaro withdrew from the bloc by presidential decree, without going through Congress.

On its part, Argentina also recently announced its return to the bloc, currently made up of Bolivia, Guyana, Suriname, and Venezuela, in addition to the suspended Peru.

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