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Common currency and economic integration in mercosur

  • Pereira, Luiz C. Bresser (Luiz Carlos Bresser)
  • Holland, Márcio

Latin America has a long history of attempts to achieve regional integration, yet success has been modest. This paper contends that this is essentially due not so much to protectionist practices in the various countries, but to the lack of a common currency, or, at least, of a tightly managed exchange rate band. We reviewed the optimum currency area criteria that indicate it is prudent to increase economic integration before attempting to establish exchange rates coordination. Yet, we show that in the Mercosul there are already the minimal requirements to work on this direction. Diminishing exchange rate instability could encourage trade and investment flows across Latin American economies. We also performed a simplified exercise to understand how feasible would be the efforts to achieve exchange rate parity stability in the two larger economies in the region (Brazil and Argentina) and step forward toward adopting a common currency.

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Paper provided by Escola de Economia de São Paulo, Getulio Vargas Foundation (Brazil) in its series Textos para discussão with number 190.

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Date of creation: 05 Jun 2009
Date of revision:
Handle: RePEc:fgv:eesptd:190
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  1. Jeffrey A. Frankel, 1999. "No Single Currency Regime is Right for All Countries or At All Times," NBER Working Papers 7338, National Bureau of Economic Research, Inc.
  2. Eduard Hochreiter & Klaus Schmidt-Hebbel & Georg Winckler, 2002. "Monetary Union: European Lessons, Latin American Prospects," Working Papers Central Bank of Chile 167, Central Bank of Chile.
  3. Pereira, Luiz Carlos Bresser, 2004. "Exchange Rate: Fix, Float, or Manage It?," Textos para discussão 135, Escola de Economia de São Paulo, Getulio Vargas Foundation (Brazil).
  4. Rose, Andrew, 1999. "One Money, One Market: Estimating the Effect of Common Currencies on Trade," Seminar Papers 678, Stockholm University, Institute for International Economic Studies.
  5. Jeffrey A. Frankel & Andrew K. Rose, 2000. "Estimating the Effect of Currency Unions on Trade and Output," NBER Working Papers 7857, National Bureau of Economic Research, Inc.
  6. Agenor, Pierre-Richard & Aizenman, Joshua, 2008. "Capital Market Imperfections and the Theory of Optimum Currency Areas," Santa Cruz Department of Economics, Working Paper Series qt7668j94x, Department of Economics, UC Santa Cruz.
  7. Reinhart, Carmen & Calvo, Guillermo, 2002. "Fear of floating," MPRA Paper 14000, University Library of Munich, Germany.
  8. Andrew Berg & Eduardo Borensztein & Paolo Mauro, 2002. "An Evaluation of Monetary Regime Options for Latin America," Working Papers 67, Oesterreichische Nationalbank (Austrian Central Bank).
  9. Olivier Jean Blanchard & Danny Quah, 1988. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," NBER Working Papers 2737, National Bureau of Economic Research, Inc.
  10. Larrain Felipe & Jose Tavares, 2003. "Regional Currencies Versus Dollarization: Options for Asia and the Americas," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 6(1), pages 35-49.
  11. Luiz Carlos Bresser-Pereira & Paulo Gala, 2008. "Foreign savings, insufficiency of demand, and low growth," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 30(3), pages 315-334, April.
  12. Neal,Larry, 2007. "The Economics of Europe and the European Union," Cambridge Books, Cambridge University Press, number 9780521683012, October.
  13. Barro, Robert & Alesina, Alberto, 2002. "Currency Unions," Scholarly Articles 4551795, Harvard University Department of Economics.
  14. Pereira, Luiz Carlos Bresser, 2008. "Crises financeira nos anos 1990 e poupança externa," Textos para discussão 172, Escola de Economia de São Paulo, Getulio Vargas Foundation (Brazil).
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