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Brazil, Argentina ditch dollar in favor of local currencies

 
 
Reply Tue 7 Oct, 2008 12:45 pm
Brazil, Argentina start bilateral transaction with local currencies

Quote:
Brazil and Argentina, two biggest economies in South America, Monday launched a new payment system of bilateral transaction with their local currencies, aimed at eliminating the U.S. dollar as an intermedium.

The new system was agreed by presidents of the two countries early last month to end decades of mandated trade in dollars.

Argentine Central Bank President Martin Redrado and Brazilian Central Bank President Henrique de Campos Meirelles signed the enforcement of the agreement, the Payment System on Local Currency(SML), last Thursday.

Under the system, exporters and importers from both countries will make their exchanges with Brazilian reais and Argentine pesos.
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Type: Discussion • Score: 0 • Views: 2,398 • Replies: 9
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cicerone imposter
 
  1  
Reply Tue 7 Oct, 2008 12:50 pm
@Robert Gentel,
All economies are cyclical. Not a good idea, because their currency will never overtake the US dollar, Japanese yen, Euro, or the English pound.
Robert Gentel
 
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Reply Tue 7 Oct, 2008 01:05 pm
@cicerone imposter,
Their currencies may never become hard currencies, but the dollar hasn't been much of a hard currency either recently.
cicerone imposter
 
  1  
Reply Tue 7 Oct, 2008 01:50 pm
@Robert Gentel,
True, but other countries trading with Brazil and Argentina will be hard-pressed to comply when the world economy's currencies are "everything else."

It's somewhat similar to the Euro where individual country's have lost control of their currency and its impact on inflation.
Robert Gentel
 
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Reply Tue 7 Oct, 2008 01:56 pm
@cicerone imposter,
cicerone imposter wrote:
True, but other countries trading with Brazil and Argentina will be hard-pressed to comply when the world economy's currencies are "everything else."


This change is for bilateral trade between Argentina and Brazil where they used to use dollars as an intermediary currency. They certainly aren't going to expect the whole world to use their local currencies.
cicerone imposter
 
  1  
Reply Tue 7 Oct, 2008 02:13 pm
@Robert Gentel,
There are always pros and cons even between two countries; I just wonder if they fully understand the consequences as well as the advantages.
Robert Gentel
 
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Reply Tue 7 Oct, 2008 02:13 pm
@cicerone imposter,
I'm nearly certain that you don't. What are the consequences and the advantages?
cicerone imposter
 
  1  
Reply Tue 7 Oct, 2008 02:20 pm
@Robert Gentel,
Without understanding the details of their respective country's strengths and weaknesses, I'm in no position to spell them out for you. All I know is what happened to many of the countries that chose to participate in the Euro.
Britian on the other hand enjoyed a strong economy as well as a strong currency since the implementation of the Euro.

Here are some of the pros and cons identified by the Brits on the Euro: http://news.bbc.co.uk/2/hi/special_report/single_currency/25081.stm
Robert Gentel
 
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Reply Tue 7 Oct, 2008 02:24 pm
@cicerone imposter,
cicerone imposter wrote:
Without understanding the details of their respective country's strengths and weaknesses, I'm in no position to spell them out for you.


Then I'll spell it out: It won't make much difference.

What is changing is that the trade used to require the dollar and now it's optional. There are advantages to small businesses in that they don't have to pay currency conversion fees but the respective currencies aren't as stable as the dollar (even with the dollar's recent instability the Real as an example has fared far worse) and this represents risk that larger companies are likely to avoid in the mean time.

The benefits are slight and largely political, a very small boost in local trade may come with this but because all it's doing is allowing the businesses the option to trade in local currency instead of being required to use dollars it's not much of a risk to anyone.

If businesses want to continue to use dollars they will continue to do so.
cicerone imposter
 
  1  
Reply Tue 7 Oct, 2008 02:27 pm
@Robert Gentel,
How big do you think "currency conversion fees" cost their respective economies? It's funny how the world economy lives with those "inconveniences."
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