Earlier this year, Argentina and Brazil announced initial plans to form a common currency known as the sur – meaning south – to be used to boost bilateral trade across the region.

For now, the sur would not replace each country’s currency, but would be used alongside their domestic money in an effort to increase intra-regional trade flows as well as reduce dependence on the US dollar.

Over the last few decades, there has been steady progress towards more integrated regional economies in almost every part of the world, states the World Bank. The levels of regional integration in South America, however, fall well short of other blocs. Disproportionately high trading costs within the region as a result of outdated trade policies, poor logistics infrastructure, as well as inefficient trade facilitation, have all proved to be obstacles to better integration.

Intra-regional trade flows across South America stood at only 14.5% of total trade in 2021, finds the UN. Meanwhile 68% of all European exports were to trading partners on the same continent, and in Asia this rate was 59%.

In theory, a common currency could hold many benefits in boosting local economies, such as increased trade facilitation, enhanced market integration, price stability, and reduced trade barriers. However, the successful implementation of a common currency requires careful planning, coordination, and political will among participating countries.

In the case of South America, diverse economic conditions, fiscal imbalances, and political differences among nations pose significant challenges to this initiative. To form any type of regional currency, it would be crucial to establish effective regional institutions and mechanisms to manage monetary policy and ensure fiscal discipline in order to overcome these challenges.

Increasing intra-regional trade

While the implementation of a common currency across South America may not be a realistic endeavor now, owing to the various economic challenges and disparities among countries in the region, there are other avenues that can be pursued to support more prosperous economies through increased regional trade.

South America possesses a range of natural resources, industries, and consumer markets, which, if effectively leveraged, could contribute to significant economic gains. By focusing on trade facilitation measures, reducing trade barriers, and enhancing regional cooperation, countries can start to tap into the immense potential of intra-regional trade.

Across South America, efforts to strengthen regional trade can be achieved through the establishment of preferential trade agreements, the harmonization of regulations and standards, the use of technology in streamlining trade processes, and the development of efficient logistics networks. By focusing on such initiatives, countries can promote a more conducive environment for trade.

This would not only benefit established industries but also encourage the growth of small and medium-sized enterprises, promoting job creation and economic diversification. Furthermore, investing in infrastructure projects that promote connectivity within South America would play a key role in boosting regional trade.

Additionally, investments in digital infrastructure and cross-border platforms can unlock new opportunities for businesses to reach a wider customer base, expand trade activities and reduce friction and risk. The TradeSun Platform, as an example, enables banks and their clients to streamline often manual and repetitive trade finance processes, reducing risk and supporting business growth.

Case study: Mercosur

The Southern Common Market, known as Mercosur, is an economic bloc made up of four member countries: Argentina, Brazil, Paraguay, and Uruguay. It functions as a customs union and free trade area, with ambitions to become a common market. However, more than three decades after its founding in 1991, the group has had minimal inter-bloc trade growth rates as well as political differences that have halted progress and trade liberalization.

To realize the potential benefits of intra-regional trade, it is important for countries to foster an environment of trust, cooperation, and openness. Dialogue and collaboration among governments, businesses, and society are essential for developing shared strategies and implementing policies that encourage regional trade.

While a common currency may not be a feasible option for South America now, focusing on regional trade can be a viable path towards supporting more buoyant local economies. By pursuing trade facilitation measures, investing in infrastructure and technology, and fostering regional cooperation, South American countries can unlock the economic potential within the region and create a more prosperous future for all.