THE PROBLEMATIC FUTURE OF THE SUCRE

By Joaquín Roy Reprint | | Print |

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MIAMI, May 6 2009 (IPS) - Sucre is the constitutional capital of Bolivia and the seat of the Supreme Court of Justice. It was named in honour of Antonio Jose de Sucre y Alcala (1795-1830), a friend of South American liberator Simon Bolivar and second president of Bolivia, born in what is now Venezuela and buried in Quito. The sucre was the currency of Ecuador until 2000 when it adopted the dollar. SUCRE is also the acronym of the Unified System for Regional Compensation, a common currency that Venezuelan president Hugo Chavez has proposed for the countries of the Bolivarian Alternative for the Peoples of the Andes (ALBA), an alliance comprised of Bolivia, Honduras, Nicaragua, Cuba, Venezuela, and now the Caribbean microstates of Dominica and Saint Vincent and the Grenadines (which use the East Caribbean dollar as their common currency). Ecuador will be an observer (it isn’t sure what it will do with the dollar). ALBA is partially a response to the Free Trade Area of the Americas (ALCA), born in 1994 in Miami, and now defunct.

The euro would be the reference point for the sucre. The euro can be traced back to 1970, the Werner Report, and the mention of an Economic and Monetary Union (EMU), the fourth level of European integration. In 1979 the European Monetary System (EMS) was created, requiring European currencies to set a precise value and limit fluctuations. Jacques Delors, president of the European Commission (ALBA has no equivalent institution), set out three structured phases for the development of the new monetary system. In 1990 restrictions on the movement of capital were eliminated. In 1998 the European Central Bank (ECB) was created. In 1999 euro exchange rates were set for the currencies of the countries of the Eurozone.

To adopt the euro, member countries had to satisfy convergence criteria established in the Maastricht Treaty in 1992 (limits on inflation, on deficits, on public debt, and exchange rates). Afterwards, the 16 countries of the Eurozone had to respect the monetary policy of the ECB and economic requirements set by the Growth and Stability Pact (GSP) which converted the euro into a common international currency.

The euro grew out of the ECU (European currency unit). It was created from a series of underlying currencies that were “money” that internationally was considered convertible and liquid in the financial markets. They were considered international currencies of recognised as having value as instruments of exchange, measures of value, and instruments of payment of debt and obligations.

The sucre, in contrast, is based on a basket of underlying currencies that lack such liquidity and convertibility. Instead of a “common currency” the sucre has been presented as a “virtual” currency, without specifying what this means. The ECU was virtual but there was a plan to transform it into a physical currency in those countries that satisfied the requirements outlined in Maastricht. No such requirements were mentioned regarding adoption of the sucre.

The weakness of the sucre economically and monetarily is notorious. A fundamental pillar of the euro is the need to respect the monetary policy imposed by the CEB, which is governed with political independence. Its objective is price stability to keep inflation at levels set forth in the Maastricht criteria. It is not known what bank would supervise the sucre.

At the economic level, the Eurozone is regulated by the Stability and Growth Pact (SGP), which synchronises the different economic cycles of the countries that make up the EMU. In addition to economic organisation, there is also a willingness to sacrifice and a unity to the project. Thus the eurozone offers security for investment and the euro is trusted as an international common currency.

The sucre has no institutional structure. It lacks the confidence of the financial markets and international investors. The underlying currencies are not considered by the financial markets to be liquid or convertible; and they lack an official listing on the currency markets. They are not accepted internationally as instruments of exchange, measure of value, or instruments of payment of debt and obligations.

In the current debate about the euro, given the financial crisis, some express the fear that the Eurozone might break apart because of certain countries that are not complying with requirements established by the CEB and the GSP. In the case of the sucre, there are no such requirements.

In short, the sucre will never be “respected” in the financial markets because it is the product of countries with very different economic histories, little economic and monetary coordination, and a high-risk reputation. The case of Cuba is the extreme, with two currencies, both without international value: the Cuban peso, used only for purchases on the island, and the convertible peso, parallel to the dollar, which is for the open market. This landscape is not exactly what Bolivar and Sucre had in mind. (END/COPYRIGHT IPS)

(*) Joaquin Roy, ”Jean Monnet” professor and Director of the European Union Centre of the University of Miami (jroy@Miami.edu).