SUR: Lula Proposes Lat Am Currency To “End US Dollar Dependency”

Lula’s announcement of plans for SUR, a new Latin American currency for bilateral trade, has excited proponents of regional integration, and will alarm Washington. The project, if successful, would mean twilight for US dollar hegemony, and it has clear implications for the 2022 election.

Less than six months ahead of Brazil’s most crucial elections since the 1980s, the former president and current frontrunner, Workers’ Party candidate, Luiz Inácio Lula da Silva, has announced a plan for the creation of a single currency as part of a wider expansion of regional relations.

Lula, who maintains a double digit lead in polls for likely runoff against far-right incumbent Jair Bolsonaro, told gathered militants at the electoral congress of coalition allies PSOL that Brazil, and Latin America as whole, don’t have to “depend on the dollar”.

Although not a brand new idea, the latest move toward ​​a single Latin American currency has been advanced by the economist Gabriel Galípolo, former president of Banco Fator, who has collaborated on the Lula government program. In a recent article published in the newspaper Folha de S.Paulo, signed by the economist and the former mayor of São Paulo, Fernando Haddad, both promote its implementation, in a model similar to the European euro, as a way to increase regional integration and strengthen the monetary sovereignty of the region.

Lula revealed that the currency would be called the SUR (“South” in Spanish), and has committed to ratifying the project if is elected president: “We are going to restore our relationship with Latin America. And God willing, we will create a currency in Latin America,” he told the event.

The former president stressed that it was not intended as a replacement for sovereign domestic currencies in Latin America, but that they could use SUR for bilateral trade rather than US dollars, and argued that it could be a useful tool to contain inflation, which is at its highest levels since the 1990s in Brazil.

Lula explained that the overall goal of SUR would be to deepen Latin American integration and strengthen the region’s economic sovereignty, reducing dependence on the United States.

US opposition to South American integration

The move toward a new regional currency is unlikely to have many fans in Washington. During his second mandate in 2009, following the inaugural Yekaterinburg BRIC summit, Lula took a telephone call from then US president Barack Obama, during which he demanded to know of plans for a rumoured new reserve currency to be created by the alliance with Russia, China, and India (plus later South Africa).

Lula has since recounted the call with Obama, regarding talk of a new BRICS currency: “The US was very afraid when I discussed a new currency and Obama called me: ‘Are you trying to create a new currency, a new euro?’. I said, ‘No, I’m just trying to get rid of the US dollar. I’m just trying not to be dependent.’”

A regional currency will cause similar alarm, especially in the context of Brazil’s BRICS partners already abandoning the US Dollar for bilateral trade in wake of the Ukraine invasion and resulting economic sanctions on Russia.

But the plans for a Latin American currency will also reignite long term US fear and hostility toward independent regional integration projects on the continent.

SUR is not the first attempt to create a single currency in Latin America. In 2009 Venezuela’s Hugo Chávez launched the Sucre currency for the ALBA regional bloc, and it was adopted by Venezuela, Nicaragua, Cuba, Bolivia, and Ecuador.

Brazilian support for a similar, larger currency project would be a game changer, not least for the United States.

Former Ambassador to Brazil, Assistant Secretary of State for Western Hemisphere Affairs, and Undersecretary of State for Political Affairs, Thomas Shannon Jr, has openly admitted that the Lula and Dilma governments were obstacles to US plans for the region.

The proposed FTAA hemisphere wide free trade area, a “NAFTA on steroids”, was famously defeated by Lula, Chavez, and Argentina’s Nestor Kirchner, at the 2005 Summit of the Americas, infuriating the Bush administration.

Two months later, in January 2006, it was the same trio who announced the construction of an 8000 km north-south gas pipeline spanning their countries. What Lula, Kirchner and Chavez dubbed the “great gas pipeline of the south” was intended to stretch from Southern Venezuela, through Brazil, to a terminal in northern Argentina, and eventually expand into a network of pipelines spanning the continent, intended to achieve “energy independence” for South America.

It was one of many ambitious integration projects, and the Lula government’s protagonism on these and other issues marked a turning point in US-Brazil relations and accelerated impetus for the Workers Party’s eventual removal, which came to fruition with Operation Lava Jato from 2014-18.

Lula recalls how Brazil had become an international protagonist“because we had removed the FTAA [Free Trade Agreement of the Americas] from the debate and had strengthened MercoSul. We had created UnaSul, which was the union of the countries of South America. We had created the BRICS, we had created IBAS, we had created a union between Africa and South America, we had created a union between countries in the Middle East and South America, we had created CELAC which was the only international summit which included Cuba but did not include the United States and Canada. We had created the BRICS bank, and the Bank of the South here in South America.”

In 2012 Al Jazeera reported on US wariness toward Brazil’s protagonism in integrating the South American continent, with Brookings institution remarking that the country “appears determined to position itself as the Latin American hegemon as it deepens its investment in various schemes of regional political and economic integration that pointedly exclude the United States”.

The prescient report continued : “In an unsettling development for Washington, Brazil has muscled in on the traditional sphere of influence of the US. In 2006, former Brazilian president Lula traveled to Lima to meet with his Peruvian counterpart, Alan García. The Brazilian leader stressed the need for greater physical integration between Peru and Brazil, and lobbied for a regional, military and political alliance between the two countries. Lest García get the wrong idea about Brazilian intentions, Lula declared that his country did not seek regional “hegemony” but merely sought to transform South America into “a global actor on a par with China and India”. Responding to Lula, García candidly admitted that he preferred Brazilian regional hegemony to that of the United States.”

If he returns to the presidency, Lula has pledged that Brazil will rebuild its relations with Latin America, following hostility towards neighbouring Venezuela and Bolivia under Bolsonaro, including assistance in plots against their respective governments.

The 2022 election

We do not know who the Biden administration prefers to win the 2022 election. Although it was naively assumed that he would be hostile toward Bolsonaro, on account of his allegiance with Donald Trump and Steve Bannon’s far right international, this has not been the case in practice, with continuing US support for Brazilian entry to the OECD, a partnership on the environment, approximation with SOUTHCOM, and status as major non-NATO ally.

Early in the Biden presidency, some extraordinary meetings took place which have recently come back under scrutiny. Whilst his secretary of State Anthony Blinken met with Brazilian foreign minister Carlos França in New York, Blinken avoided Brazil on his South American tour in late 2021. Yet, both the head of the CIA William Burns, and National Security Advisor Jake Sullivan, both visited the Bolsonaro government within a month of each other.

While both visits were dismissed as routine at the time, they raised eyebrows, and Burns’ trip returned to the headlines almost a year later, amid a strange US government leak to Reuters which claimed he had warned off Bolsonaro and the Generals off threatened coup should Lula win the presidential election. General Heleno, head of institutional security, and one of those present, denies the conversation took place.

In April 2022, US Undersecretary for Political Affairs Victoria Nuland led a delegation for “high level dialogue” with the Bolsonaro administration, of a type not associated with a government faced with imminent defeat at the ballot box. The delegation followed a refusal from Petrobras to raise oil production at the US’ request, to compensate for loss of Russian supply. Weeks later Bolsonaro appointed a new minister of Mines and Energy, who immediately announced plans for the state oil giant’s privatisation.

Nuland’s documented speciality is engineered political outcomes. The Undersecretary of State claims to have talked with both the Government and with opposition about the sanctity of the electoral process, but it is unclear which opposition parties she is referring to. In Colombia she met with all presidential candidates except left wing frontrunner Gustavo Petro.

Biden has also, despite open threats to Brazil’s democracy, invited Bolsonaro to the Summit of the Americas, whilst barring the attendance of Nicaragua, Venezuela and Cuba on grounds of  commitment to democratic norms.

Although some analysts have gone with the early assumption of a Biden preference for Lula, this is in no way clear. In fact, Bolsonaro is far friendlier to broad US hegemonic interests in Brazil and the wider region than any Lula-led government would be, no matter how broad a church its makeup, with its inclusion of former opponents like Geraldo Alckmin, who once enjoyed support, albeit tepid, from the State Department.

Beyond the surface, it is certainly difficult to envisage the United States actively favouring a Lula government over a continuation of the Bolsonaro-Guedes project, guaranteed as it is by the military. Thus it is important to separate public diplomacy, and DNC distaste for the aesthetics of Bolsonaro, from the massive strategic advantages he brings through being the Brazilian president most subservient to the United States in history.

And that is before we consider what the US will see as the “threat” of SUR, although ultraliberal economy minister Paulo Guedes has himself also floated the idea of a regional currency, albeit to facilitate a US-friendly free trade area.

Plans for a Post-Bolsonaro future

Lula’s public remarks draw on more detailed plans earlier announced by Lula allies including his surrogate candidate at the 2018 election, Fernando Haddad, who is now frontrunner for São Paulo governor, and economist Gabriel Galípolo. The pair published an essay in Folha de S.Paulo newspaper advocating a new Latin American single currency, and arguing how it could accelerate regional integration and protect monetary sovereignty.

Haddad and Galípolo write: “The use of currency power at the international level renews the debate about its relationship with sovereignty and the capacity for self-determination of peoples…”

“If, within each nation, the State and its currency are sovereign, in international relations the logic is different. There is, in the international financial system, a hierarchy among national currencies, with the dollar at the top giving the United States the privilege of issuing the international currency.”

“The recent conflict between Russia and Ukraine has rekindled old fears that had cooled at the end of the Cold War. The possibility of a war involving nuclear powers continues to threaten human existence, and the disrespect for national sovereignty haunts States that do not have the same war power.”

“Faced with the impossibility (and insanity) of a military confrontation with another nuclear power, Biden and his allies look to the power of their currencies for ways to isolate and weaken the enemy.”

“Not that it is an unprecedented exercise of power. In 1979, the rise in interest rates in the US to reaffirm the dollar’s power as a global currency led several countries (including Brazil and much of Latin America) to a situation of insolvency. In the 2008 crisis, it was the strength of the dollar that allowed the FED (American Central Bank) to sustain prices in the financial market, offering liquidity and demanding assets.”

“During the 1990s, successive global crises led several Latin American countries to resort to the IMF (International Monetary Fund) in order to honor their payments in international currencies. IMF support was usually conditioned on adherence to the “suggested” economic prescription.”

“On March 25, the IMF approved a new agreement with Argentina, the 22nd since 1956. Other countries bet on dollarization as a form of macroeconomic stabilization, renouncing monetary sovereignty and autonomy in the execution of macroeconomic policies. As of 2003, Brazil accumulated international reserves and reverted its position from debtor to net international creditor.”

“As in war threats, international reserves function as a defense of domestic currencies, including to discourage attacks. However, as emerging or developing countries, to different degrees, we all still suffer from economic limitations stemming from the international fragility of our currencies.”

“An integration project that strengthens South America, increases trade and combined investment is capable of forming an economic bloc with greater relevance in the global economy and granting greater freedom to the democratic desire, to the definition of the economic destiny of the bloc’s participants and to the expansion of monetary sovereignty.”

“The Brazilian monetary experience, such as the successful implementation of the URV (Real Value Unit), can provide a paradigm for the creation of a new South American digital currency (SUR), capable of strengthening the region.”

“The currency would be issued by a South American Central Bank, with an initial capitalization made by member countries, proportionate to their respective shares in regional trade. Capitalization would be done with the countries’ international reserves and/or with a tax on exports.”

Member countries “would receive an initial endowment from SUR, according to clear agreed rules, and would be free to adopt it nationally or maintain their currencies. Exchange rates between national currencies and SUR would be floating.”

The Lula team’s plan for the currency is still under development.