By FERNANDO HADDAD & GABRIEL GALÍPOLO*
South American countries would expand sovereignty with shared currency with greater international liquidity
In asset pricing models, the interest paid on debt securities issued by the government is called sovereign risk or free of credit risk, precisely because of the ability of the monetary authority to issue the means of payment capable of settling its obligations and debts, within their own savings.
If, within each nation, the State and its currency are sovereign, in international relations the logic is different. There is, in the international financial system, a hierarchy between national currencies, with the dollar at the top giving the United States the privilege of issuing the international currency.
The recent conflict between Russia and Ukraine has reignited old fears that had subsided at the end of the Cold War. The possibility of a war involving nuclear powers continues to threaten human existence, and disrespect for national sovereignty haunts states that do not have the same military power.
The US and Europe used the power of their currencies to impose severe sanctions against Russia, confiscating international reserves and excluding it from the international payments system (Swift). Faced with the impossibility (and insanity) of a military confrontation with another nuclear power, Joe Biden and his allies seek in the power of their currencies ways to isolate and weaken the enemy.
Not that it's an unprecedented exercise in power. In 1979, the rise in interest rates in the US to reaffirm the power of the dollar as a global currency led several countries (including Brazil and much of Latin America) to a situation of insolvency. In the 2008 crisis, it was the strength of the dollar that allowed the Fed (American Central Bank) to sustain prices in the financial market, offering liquidity and demanding assets.
The use of currency power at the international level renews the debate about its relationship with the sovereignty and capacity for self-determination of peoples, especially for countries with currencies considered non-convertible. Because they are not accepted as a means of payment and a store of value in the international market, their managers are more subject to the limitations imposed by the volatility of the international financial market.
During the 1990s, successive global crises led several Latin American countries to resort to the IMF (International Monetary Fund) in order to honor their payments in international currencies. IMF support was usually conditional on adherence to the “suggested” economic prescription.
On March 25th, the IMF approved a new agreement with Argentina, the 22nd since 1956. Other countries bet on dollarization as a form of macroeconomic stabilization, renouncing monetary sovereignty and autonomy in the execution of macroeconomic policies. As of 2003, Brazil accumulated international reserves and reversed its position from a debtor to a net international creditor.
As with war threats, international reserves function as a defense for domestic currencies, including to discourage attacks. However, as emerging or developing countries, to different degrees, we all still suffer economic limitations arising from the international fragility of our currencies.
An integration project that strengthens South America, increases trade and combined investment, is capable of forming an economic bloc with greater relevance in the global economy and granting greater freedom to the democratic desire, in defining the economic destiny of the bloc's participants, by expanding monetary sovereignty.
The situation is not simple, given the profound structural and macroeconomic heterogeneity of the region's countries. Attempts to strengthen and accelerate regional integration have so far relied on the creation of free trade areas and agreements in the fields of credit and infrastructure. However, the pace of this process is slow, marked by several moments of retreat.
The beginning of a process of monetary integration in the region is capable of introducing a new dynamic to the consolidation of the economic bloc, by offering countries the advantages of access and shared management of a currency with greater liquidity, valid for relations with economies that, together, represent greater weight in the global market.
The Brazilian monetary experience, such as the successful implementation of the URV (Real Unit of Value), can support a paradigm for the creation of a new South American digital currency (SUR), capable of strengthening the region.
The currency would be issued by a South American Central Bank, with an initial capitalization made by member countries, proportional to their respective participation in regional trade. The capitalization would be done with the countries' international reserves and/or with a tax on the countries' exports outside the region. The new currency could be used for both commercial and financial flows between countries in the region.
Member countries would be credited with an initial SUR endowment, under clear agreed rules, and would be free to adopt it domestically or keep their currencies. Exchange rates between national currencies and the SUR would fluctuate. Financial claims, such as international reserves, would also provide a counterpart for equivalent SUR issuance.
A mechanism of symmetrical adjustments between surplus and deficit countries is also fundamental. Resources from this mechanism will be used to capitalize a fund of the South American Clearing House, aimed at financing the reduction of asymmetries between the economies and the promotion of synergies between them.
Member countries will be able to buy SUR to compose their international reserves, without the amounts acquired being taxed. Mechanisms must be created to tax and discourage speculative attacks.
The creation of a South American currency is the strategy to accelerate the regional integration process, constituting a powerful instrument of political and economic coordination for the South American peoples. It is a fundamental step towards strengthening sovereignty and regional governance, which will certainly prove decisive in a new world.
*Fernando Haddad, professor and lawyer, was candidate for the Presidency of the Republic for the PT in 2018, mayor of São Paulo (2013-2016) and Minister of Education (2005-2012).
* Gabriel Galípolo, master in political economy from PUC-SP, was president of bank Fator (2017-2021).
Originally published in the newspaper Folha de S. Paul.