MercoPress. South Atlantic News Agency

Argentina and Brazil ready to trade in local currencies

Argentina and Brazil will be launching in a week's time a “de-dollarized” trade system for small and medium companies which should considerably reduce financial costs that could be extended in the near future to the tourism industry, according to banking sources quoted in Buenos Aires La Nacion.

"The payments system with local currencies, SML, will be adjusted to a reference exchange rate from Mercosur main trading partners and will begin with the participation of banks with branches in the block's two main partners. Next Friday the Argentine Central Bank president Martin Redrado will be hosting Brazilian counterpart Henrique Meirells to formalize the launching of SML, which is voluntary and is expected to be the seed for monetary integration. Apparently several important corporations have been requesting information about the system and some of the two countries main banks have registered to operate: Bradesco, Credicorp, Nuevo Banco de Cordoba, Banco de Brasil, BBVA, BNP Paribas, HSBC, Nacion and Galicia. Central banks won't be charging the private entities clearing fees and deals will be agreed on the reference exchange rate to be fixed on a daily basis. Another cost saving will be elimination of the commission normally charged by corresponding banks in New York that act as intermediaries. However at this stage the system is voluntary so as not to force the private sector and if companies wish to return to the US dollar system they can. Nevertheless the next step is to have the tourism industry operate in local currencies with Brazilian visitors touring Argentina paying for the package in Argentine pesos and consequently Argentine tourists in Brazil contracting and paying with the local currency. SML initially will be applicable to trade operations including services and related expenses such as freight insurance, as long as they are previously agreed by both sides. Central banks will make out payments in the local currency, be it for import or export operations. Compensation follows with banks transferring the credit to exporters through the normal banking system.