Plan to challenge dollar with new currency, ‘regional financial architecture’

The US dollar is used in the majority of international trade, and its status as the global reserve currency gives the United States an “exorbitant privilege” that underpins its geopolitical and economic dominance.

Yet opposition to Washington’s hegemony is growing around the world. Institutions of Eurasian integration are proposing their own currencies and payment systems. Latin America, too, has ambitious plans to end its dependence on the US dollar.

Prominent economist Andrés Arauz, a leftist leader who came close to winning Ecuador’s 2021 presidential elections, published a blueprint for a “new regional financial architecture” to unite Latin America, challenging the hegemony of the dollar and Washington-dominated institutions like the International Monetary Fund.

His plan centers around creating a new regional currency for international transactions, thereby bypassing the dollar.

The framework is based on a proposal made by Brazil’s President-elect Lula da Silva, who pledged before winning the October election that “we are going to create a currency in Latin America,” in order to “be freed of the dollar.”

The currency is expected to be called the Sur (“south” in Spanish), and would be overseen by a newly created Banco Central del Sur (Central Bank of the South).

To do all of this, Arauz has advised Lula to revive and strengthen existing institutions of regional integration like the Union of South American Nations (UNASUR) and the Banco del Sur (Bank of the South), which were undermined by US-backed coups and the rise of right-wing governments.

The goal is “to harmonize the payment systems of” the countries that make up UNASUR in order “to carry out inter-bank transfers to any bank inside of the region in real time and from a cellphone,” explained Arauz.

The Ecuadorian economist also insisted that Latin America should reject the US-dominated International Monetary Fund (IMF) and work with Africa to create debt relief and new economic opportunities.

US dollar used in 96% of trade in the Americas

Both Lula and Arauz have made it clear that the Sur would not replace local currencies, like the European Union’s euro. Countries in Latin America would still have their own national currencies, so they can pursue a sovereign monetary policy.

Rather, the idea is to use the Sur for bilateral trade between countries, in place of the dollar.

The proposal is very popular in Latin America, given that it is the world’s most dependent region on the US dollar.

The dollar was used in 96% of trade transactions between countries in the Americas from 1999-2019, according to the Federal Reserve.

The creation of the Sur currency could fundamentally change this.

Latin America’s combined economy is nearly one-half of the US economy

Most trade in the Americas is dominated by the United States, which has the world’s second-largest economy (after the People’s Republic of China, when measured with purchasing power parity).

The GDP of the United States is roughly $23 trillion, while that of Canada is nearly $2 trillion.

It is often reported that the nominal GDP of Latin America and the Caribbean is around $5.5 trillion, according to World Bank data, and that the three largest economies in the region are Brazil ($1.6 trillion), Mexico ($1.3 trillion), and Argentina ($491 billion).

But nominal GDP measurements can be misleading, and only reinforce the hegemony of the US dollar. A much more accurate measurement of GDP, purchasing power parity (PPP), takes into account the cost of living in each respective country.

Adjusted accordingly with PPP measurements, the more precise estimate of the GDP of Latin America and the Caribbean is actually $11.4 trillion, with Brazil at $3.4 trillion, Mexico at $2.6 trillion, and Argentina at $1.1 trillion.

This shows that the combined economies of Latin America and the Caribbean make up nearly half of the size of the US economy.

The region is also very rich in natural resources, including oil, minerals, and agriculture.

If Latin America could unify with its own independent financial institutions, it has enormous economic potential.

The (aborted) birth of the Bank of the South

Latin America’s vast economic potential has long been recognized by left-wing, anti-imperialist leaders in the region.

In the 2000s, the leftist presidents of Venezuela (Hugo Chávez), Brazil (Lula da Silva), Argentina (Néstor Kirchner and Cristina Fernández de Kirchner), Bolivia (Evo Morales), Ecuador (Rafael Correa), and Paraguay (Fernando Lugo) made plans to create alternative financial institutions to challenge the US-dominated World Bank and IMF.

The World Bank and IMF have a history of trapping Global South countries in unpayable odious debt, and subsequently imposing neoliberal “structural adjustment” programs that force governments to implement suffocating austerity policies that benefit US corporations.

Following the vision of Venezuela’s revolutionary President Hugo Chávez, Latin America’s left-wing leaders agreed to create a bank aimed at regional unity, called the Banco del Sur (Bank of the South).

Chávez, Lula, the Kirchners, Morales, and Correa met in Argentina in 2007 and signed a treaty officially creating the bank.

But the launch of the Banco del Sur was delayed.

In 2009, the leaders of these countries met again for the Africa-South America Summit (ASA) in Venezuela, where they vowed a combined $20 billion in initial capital.

These plans were never realized, however.

Several leftist governments in Latin America were destabilized and overthrown in a series of brutal geopolitical attacks waged by the United States and right-wing oligarchies – namely several US-sponsored coups: a military coup in Honduras in 2009, judicial coup in Paraguay in 2012, internal coup in Ecuador in 2017, soft coups in Brazil in 2016 and 2018, and violent coup in Bolivia in 2019, as well as numerous failed coup attempts in Venezuela and Nicaragua.

These US attacks and the ensuing right-wing surge also led to the sabotage of another key instrument of regional integration, the Union of South American Nations (UNASUR).

While the Banco del Sur was meant to economically integrate the region, political integration was be overseen by UNASUR.

UNASUR was formally created in a 2008 treaty, and officially operational by 2011.

But as Washington prepared another coup attempt against Venezuela, in 2018 and 2019, the right-wing leaders of Brazil, Argentina, Colombia, Chile, Peru, and Paraguay coordinated together to withdraw from UNASUR, leaving the institution very weak.

Another important regional institution created in parallel to the Banco del Sur and UNASUR was the ALBA: the Alianza Bolivariana para los Pueblos de Nuestra América (Bolivarian Alliance for the Peoples of Our America).

Venezuela and Cuba formed the ALBA in 2004 as an economic alliance of left-wing governments in Latin America and the Caribbean.

The ALBA created its own currency for inter-state trade in the region. Adopted in 2009, it was called the Sucre: the “Unified System for Regional Compensation.” (This acronym also referenced the South American revolutionary Antonio José de Sucre, who joined General Simón Bolívar in the anti-colonialist struggle against the Spanish empire in the early 19th century.)

At its peak, the ALBA brought together Venezuela, Cuba, Nicaragua, Bolivia, Ecuador, and Honduras in a trade bloc, and they used the Sucre in more than $1 billion in bilateral trade in 2012.

Chávez’s dream of unifying the region was undermined by his untimely death in 2013, and what followed was a devastating US economic war waged against Venezuela, including an artificial US-orchestrated commodities crash in 2014, several violent Washington-backed coup attempts, the imposition of harsh sanctions that gradually escalated into a Cuba-style embargo, and the Donald Trump’s attempt to forcibly install unelected coup leader Juan Guaidó as supposed “interim president.”

The left again rises in Latin America

Despite setbacks in the previous decade, by 2022, the left is back on the rise in Latin America.

For the first time in history, the region’s seven most-populated countries are governed by left-wing leaders (Brazil, Mexico, Colombia, Argentina, Peru, Venezuela, and Chile).

Colombia’s deeply pro-US right-wing governments were always a thorn in the side of the patria grande (the project of Latin American unity). But that changed with the election in June of Colombia’s first-ever left-wing president: Gustavo Petro.

Recognizing the potential of this historic moment to realize true regional unity, Ecuador’s leftist leader Andrés Arauz has laid out a blueprint for not only political but also economic integration.

Arauz has called for reviving both UNASUR and the Banco del Sur, and strengthening them further with a new Banco Central del Sur (Central Bank of the South).

Arauz is an accomplished economist. He spent more than a decade working at Ecuador’s central bank, eventually serving as its general director. He is currently completing his PhD in financial economics.

Under Ecuador’s former socialist President Rafael Correa, Arauz served as minister of knowledge and human talent.

Arauz has since become a leading figure in Ecuador’s leftist Correísta movement, continuing the “Citizens’ Revolution” launched by Correa.

Arauz was Correísmo’s candidate in the 2021 presidential elections. He won the first round in a landslide, but lost the second round with 47.6% of the vote compared to the 52.4% of Ecuador’s current President Guillermo Lasso, a right-wing multi-millionaire banker notorious for his corruption.

Although he is not formally in office, Arauz has served as an economic advisor for left-wing politicians in the region.

Arauz is a co-founder of the Grupo de Puebla, a political forum bringing together progressive forces in Latin America. He is also a member of the council of the Progressive International.

Lula da Silva, who governed Brazil from 2003 to 2010, is closely allied with both of these organizations. This makes it likely that Arauz will serve in some capacity as an advisor for the new Brazilian government.

In 2020, Lula published an article at the Progressive International website, titled “For a Multipolar World.” In it, the Brazilian left-wing leader said he seeks “the creation of a multipolar world, free from unilateral hegemony and from sterile bipolar confrontation.”

During his presidential campaign, at a rally in May 2022, Lula promised, “We are going to create a currency in Latin America, because we can’t keep depending on the dollar.”

Lula won the October 30 presidential election and will once again become head of state of the largest country in Latin America on January 1, 2023.

Blueprint to revive the Bank of the South and UNASUR with new regional currency ‘Sur’

In response to Lula’s electoral victory, Arauz wrote a blueprint outlining stepsthat Brazil can take to help develop “a new regional financial architecture.”

The article, published at the pan-Latin American website NODAL, is a guide that Lula can follow when he becomes president.

“The goal: that on January 1, 2023, in the inauguration of Lula, the treaties are signed for the new UNASUR,” Arauz wrote.

“We must put in operation the Bank of the South and sign the founding treaty of the Central Bank of the South and the Sur, the regional currency – in addition to national currencies – that President Lula proposed,” he added.

“The initial step should be immediate,” Arauz stressed.

The system will seek “to harmonize the payment systems of UNASUR to carry out inter-bank transfers to any bank inside of the region in real time and from a cellphone,” he explained.

Arauz cautioned that these actions must be taken soon and quickly, because “the political window of opportunity is between January and September 2023, the date of primary elections in Argentina.”

Argentina’s right-wing opposition, which is much more pro-US and supportive of dollar hegemony and neoliberal economics, could win these elections, throwing a wrench into the project of regional unity.

Arauz warned, “We can’t give up this historic window of opportunity to the slow inertia of the foreign ministries and the backwardness of malinchismo” – a pejorative term that refers to people in Latin America who feel self-hate toward their own societies and have internalized the inferiority complex of cultural imperialism.

“Progressive presidents must create an immediate channel of communication between each other,” he emphasized. “The political will is there, there is no time to lose.”

If Latin America manages to create this “new regional financial architecture,” the Ecuadorian economist argued, it could “allow a breather for Argentina.”

Argentina has faced a deep economic crisis, caused largely by unpayable odious debt owed to the IMF, after the previous right-wing government in Buenos Aires took the largest loan in the fund’s history.

Arauz has been a vocal critic of the IMF. In his article, he said Latin America should take “collective action to retroactively nullify the illegal surcharges of the International Monetary Fund (IMF).”

IMF surcharges are extra interest payments that the US-dominated financial institution imposes on borrowing countries that owe it large debts.

The Bretton Woods Project noted that “civil society organisations, human rights experts and others have argued that surcharges effectively discriminate against and punish countries that are most in need of IMF assistance.”

Arauz proposed that, in order to annul these IMF surcharges, “if necessary,” Latin America and Africa should propose a resolution in the United Nations General Assembly.

He added that Latin America should work together with Africa to demand that the United States issue them IMF special drawing rights to help their economies.

The region could then “recycle” these special drawing rights to help Argentina, Arauz said.

The Ecuadorian economist also wrote that UNASUR could try to make some of the capital fleeing the region to the United States instead return to its countries of origin, by invoking article VIII.2.b of the founding articles of agreement of the IMF.

Arauz offered economic advice for Brazil’s domestic affairs as well.

Lula should “undo the de facto privatization of the Central Bank of Brazil that was implemented” by current far-right President Jair Bolsonaro, and “rearticulate the Central Bank of Brazil in the line of development, integration, and democracy,” he wrote.

“It is very difficult to be able to meet the goals of eradicating hunger and the reindustrialization the Brazilian people need if he has a central bank permanently boycotting it,” Arauz added.

He noted that Colombia’s central bank has already taken actions to oppose the proposed reforms of new left-wing President Gustavo Petro.

But Arauz pointed out that “this wave of regional integration cannot remain only at the level of presidents; it should be a true integration of the peoples.”

“That implies profound participation of the social movements of all of the region, but above all, immediate and tangible benefits for the citizenry,” he stressed.

“It also implies giving preferential treatment to the smallest countries,” Arauz added. “The leadership of President Lula is crucial to join together the countries with distinct ideological orientations.”

In the article, the Ecuadorian economist proposed another idea: creating a “massive program of student exchange,” so that “the youth of Latin American public education are able to study a semester or a year in another country in the region.”

The goal should be “a million youths in student exchange in” 2023, Arauz wrote. “This will be the motor of integration.”

He called for forms of cultural integration as well, proposing a regional contest inviting musicians, writers, and poets to make a hymn for UNASUR.

Arauz concluded the blueprint suggesting that Lula should create a “plenipotentiary ambassador for regional integration.”

The Ecuadorian leftist leader made it clear that he has major ambitions for the region.

It’s not enough for Latin America only to unite, Arauz argued. It needs more representation in international institutions.

“The countries of UNASUR should demand a collective position at the table of the G20, which the African Union is about to obtain,” he wrote.

From Multipolarista.