Panel SA: Brazil wants an agreement to study a common currency, but tries to avoid confusion about the end of the real

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On President Luiz Inacio Lula da Silva’s (PT) trip to Argentina, this Monday (23), the government should sign an agreement to create a working group that will study the viability of the common currency in the medium and long term.

On the Brazilian side, Minister Fernando Haddad (Finance) has tried to remove the confusion that it would be a single currency, like the euro. Even to avoid mistakes, the nomenclature used will be “unit of account”. He has said the aim is not to replace national currencies but to facilitate trade between countries, hampered by Argentina’s currency restrictions.

The agreement should also cover export credit and the free movement of capital between the countries, matters of great interest to Brazilian industry, which faces difficulty in withdrawing money from Argentina in business.

The assessment is that Brazil’s space in Argentina’s international trade was occupied by China with financing in Chinese currency for Argentines to import Chinese products, in addition to a currency swap line from one central bank to another.

The idea is to stimulate export credit to the neighboring country through exclusive credit to pay for purchases of Brazilian products and services. In this model, the company exporting a product to Argentina pays the bank in cash, which is supported by the export guarantee fund, that is, the bank takes the risk of the National Treasury, while the fund takes the risk sovereign of Argentina, which is weak, but requires an additional guarantee of real guarantees, with sales contracts such as oil, soy, wheat, gas, which will be deposited outside Argentina, so that they are executed.

In this way, there is only a loan and guarantee on the Brazilian side if Argentina offers in exchange a collateral with real guarantees, which are liquid assets convertible in dollars or reais. Argentina bears the commercial and credit risk of the importer in an operation made in Reais with insurance that can be opened in case of double default, if the importer does not have Reais to pay the bank here, and if Argentina does not have the resource to pay Brazil.

For those who defend the study of the common currency or unit of account, the assessment is that, even so, it would be important to give Brazil the conditions to coordinate economic policy in the region.

Joana Cunha with Paulo Ricardo Martins and Diego Felix

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