Brazil and Argentina\u00a0are expected to announce preliminary plans about a common currency\u00a0this week. The two countries are now politically aligned, following the recent election of Brazil\u2019s former president, Luiz In\u00e1cio Lula da Silva of Brazil. This could set the stage for another major currency bloc, with the eurozone serving as both a blueprint and a cautionary tale.<\/p>\n
The idea of having Brazil and Argentina go in on a common currency is raising the same question in many corners right now.<\/p>\n
\u201cMy initial reaction was, \u2018Why do this?\u2019\u201d said Bipan Rai, global head of foreign currency exchange strategy at CIBC.<\/p>\n
That\u2019s especially the case for Brazil, he said. \u201cArgentina historically has been a pretty unstable environment for currencies. In fact, they\u2019ve had to introduce new currency quite frequently throughout its history.\u201d<\/p>\n
Argentina\u2019s currency woes are still pressing. Last year, its inflation rate hit a three-decade\u00a0record<\/a>\u00a0of 95%. The attraction may come down to influence for Brazil, Rai said.<\/p>\n \u201cIt would give them the same sort of clout that Germany might have over a peripheral country in the eurozone,\u201d he said, adding that Brazil\u2019s economy is much larger than Argentina\u2019s, and it wants to solidify its position as a regional powerhouse.<\/p>\n Brazil may also be concerned about Argentina deepening economic ties with other countries, said Susan Pozo, an economics professor at Western Michigan University.<\/p>\n \u201cThey may want to forge ahead in terms of linking themselves more closely to Argentina,\u201d she said.<\/p>\n Having a common currency could also ease trade between the two countries. \u201cTrade across borders can be much more expensive when you have to think about exchange rates and potential changes in exchange rates,\u201d she said.<\/p>\n […]<\/p>\n