common currency - a chart reading "Currency MOM variation, %"

The Argentine peso and the Brazilian real had contrasting performances in 2022

Despite recent rumors, Argentine Finance Minister Sergio Massa and his Brazilian counterpart, Fernando Haddad, made clear that the real and the peso are not going away. Instead, both countries will work on the creation of a monetary instrument to facilitate bilateral trade between the two countries. Details are still unclear, and it is unlikely the initiative could materialize any time soon. Hence, firms should not expect major changes in Argentina’s 2023 foreign exchange outlook, which remains highly fragile.


After four years of tense bilateral relations with the Jair Bolsonaro administration, Luis Inácio Lula Da Silva’s arrival to the presidency ignited high hopes among Argentine government officials who see Partido dos Trabalhadores as a regional ally. While a currency bloc is off the table mainly due to Argentina’s economic troubles, both countries signed a memorandum of economic integration during the 7th CELAC summit in Buenos Aires. Here are the main points included in the document:

  • Brazil’s National Development Bank will provide US$ 820 million in financing to Argentina’s Nestor Kirchner pipeline that will transport gas from the Vaca Muerta oil wells.
  • The countries will develop a program to finance bilateral trade through credit provided by the Banco Central do Brasil and Banco de la Nacion Argentina, which would increase the competitiveness of local companies.
  • Brazil and Argentina will work on strengthening the local currency payment system within Mercosur to settle bilateral payments in local currencies.

Our View

The creation of the euro bloc took decades of planning and calibration, even between already-highly integrated economies. In Argentina’s case, the idea comes more from the need to anchor FX volatility (and achieve a political win ahead of the election) than from a well-thought-out plan for monetary integration. The official currency depreciated 41.1% in 2022 despite capital controls and multiple FX rates. Additionally, inflation was 94.8% YOY. The Brazilian real, on the contrary, appreciated almost 8%, and inflation closed at 5.9% for the whole year. Most Argentine economists and government officials agree that the country’s monetary policy is unsustainable and that reforms can’t wait much longer, but with a weak government and a negative 2023 economic outlook, change will likely have to wait until a new administration in 2024. Moreover, domestic political challenges in Brazil will limit Lula’s scope to lead ambitious regional initiatives such as the creation of a new currency bloc.

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