Argentina and Brazil propose a bizarre common currency

Argentina is runningimfsucre out of vaults. With annual inflation nearing 100%, as the central bank prints bills to cover the government’s fiscal deficit, local banks are making space for ballooning stocks of pesos. Officials have tightened capital controls. Imports are at a standstill. The government is going through the motions with the to avoid its tenth sovereign default since independence in 1816. Yet on January 22nd Luiz Inácio Lula da Silva, Brazil’s president, and Alberto Fernández, his Argentine counterpart, announced they would start preparations for a common currency, possibly leading to a full currency union, which would hitch South America’s biggest economy to one of its sickest.The idea has a history. First came the “gaucho”, a currency meant to replace Brazil’s cruzado and Argentina’s austral until the concept was abandoned amid economic turmoil in 1988. On its heels was a proposal by members of Mercosur, a trade alliance, to adopt a common currency, and , an experiment led by Venezuela, which had ambitions to reduce the continent’s reliance on the dollar. Since it is prone to selling foreign reserves to prop up the peso, Argentina is always short of dollars to settle loans and pay for imports. A joint currency would create alternative reserves and make neighbourly trade easier. Brazil is Argentina’s largest trading partner. By supporting the idea Lula, as Mr Silva is known, gets a reputational boost from being seen to revive regional co-operation.