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The Unified System for Regional Compensation (Sistema Unitario de Compensación Regional de Pagos, SUCRE), whose founding treaty was signed in October 2009 by ALBA's presidents, finally came into effect on 27 last January. The Sucre is a virtual currency that allows those who buy goods in other countries (which are part of the system) to pay in their domestic currency, and also those who sell to receive payment in their local currency. This represents a saving of foreign currency and lowers the transaction costs, thus opening the way for further development of trade between these countries.

From time immemorial mankind has sought to exchange goods and services produced by individuals or communities to meet their needs, forcing the use of various goods that had some value and were accepted by all. For example, food products, metals and shells were used as primitive monetary means.

With the passage of time several obstacles prevented the barter to take place in the best way, especially since the expansion of trade on a large scale through the development of transport and communications. This led to seek a means that complied with the three properties that money should have: i) a medium of exchange accepted by all; ii) a unit of account comparable with other goods, and iii) conservation of value. Several centuries before our era, this led to the extensive use of gold and silver in coins similar to those we know today. Paper money would arrive later on and, more recently, the electronic money.

In recent decades, developments have led to the hegemony of the dollar as a global means of exchange and, after the Bretton Woods agreements, the only currency convertible into gold, until the fall in the value of the dollar caused by the U.S. deficit of the 70s led to put aside the gold standard. And although the dollar is still by far the most common currency of reference within the international monetary system, devaluation and the international crisis has led to the exploration of other alternatives, including some talk about the possibility of returning to the precious metal as a value reserve and as a global payment.

Among these alternatives an idea was born to establish a joint accounts system to remove the dollar in commercial transactions between ALBA countries. The Unified System for Regional Compensation (Sistema Unitario de Compensación Regional de Pagos, SUCRE), whose founding treaty was signed in October 2009 by their respective presidents, finally came into effect on 27 last January. The Sucre is a virtual currency that allows those who buy goods in other countries (which are part of the system) to pay in their domestic currency, and also those who sell to receive payment in their local currency. This represents a saving of foreign currency and lowers the transaction costs, thus opening the way for further development of trade between these countries.

Transactions are carried out through the Central Banks of each ALBA member country (Cuba, Venezuela, Bolivia, Ecuador, Nicaragua, Antigua and Barbuda, Dominica, and St. Vincent and the Grenadines) with a rate of $ 1.25 per Sucre, which represents an intermediate value regarding the dollar and the euro. The operations will be supervised and regulated by the Regional Monetary Council of the Sucre. The Council will also be responsible for the operations of the Clearinghouse and the Reserve Fund, which are both part of the new system.

In its initial phase the Sucre will be a currency that will serve only as a common unit of account for the payment of commercial transactions. Later on, it will also serve as a common unit of account between importers and exporters. Finally, it will reach a phase of consolidation with the circulation of a currency that will have value as means of payment and value reserve among member countries and their respective domestic markets.

So far there are three countries that have enacted laws for the ratification of the new currency: Venezuela, Cuba and Bolivia. So everything was ready for the first sales transaction using the Sucre, which materialized on Wednesday February 3 for the amount of 108,000 Sucres (equivalent to 135,000 dollars) for the sale of 360 tons of rice, from Empresa Mixta Socialista Arroz del Alba SA to Empresa Cubana Comercializadora de Alimentos (Alimport). The transaction was carried out between the central banks of both countries by means of the technology platform of the Bank of ALBA. The next commercial operation will involve Bolivian textiles.

But this is just the beginning. Venezuela has already defined the goods to be imported during the first phase ending in June 2010, among which are yellow corn, rice, beans, and soybeans; potassium chloride, sulfuric acid, cotton sewing thread and isopropyl alcohol. The exported goods include melons, bananas, coffee, corn flour, mango, orange juice, whole and ground cacao beans, butter, black beans, sardines, methanol, white oils, lubricants, aluminum sulfate, aluminum wire, and gasoline, among others. Ecuador has done the same, though with a smaller amount of products on the list.

Times of crisis have shown that in terms of trade, according to latest figures from ECLAC, in 2009 Latin America and the Caribbean suffered a drastic drop in exports (-24%) and imports (-25%). As regards the destination of exports from the region, exports to the U.S. fell by 32% and to the European Union by 33%. In Asia the drop was less dramatic, 12% less than the previous year, mainly because exports to China were reduced by only 2%. These data confirm the growing importance acquired by China as a destination for regional exports. Hence, some countries like Argentina have set up currency swap agreements with China to facilitate trade and financial transactions in the same way it did with Brazil.

The prospects for a regional monetary system should emerge much more interesting, considering that according to research by economist Oscar Ugarteche – who also proposed the idea of a South American Monetary Unit (UMS) – the composition of Latin American exports in terms of their destination has changed in recent years, and intra-regional trade has increased slightly, rising from 16% in 2000 to 20% in 2007 on total exports, while trade with the U.S., Europe and Asia has declined proportionately. Similarly, last year ECLAC urged to bet on intra-regional trade as it considered to be more beneficial.

On the other hand, the U.S. demand for exports from countries with which it has signed trade agreements decreased in 2009. In other words, it is confirmed that the bid to achieve trade agreements with industrialized countries is not the best strategy of integration into international markets for our countries.

Although only the ALBA countries have entered the system, the Sucre is not only the first step in the creation of a physical currency in a process similar to the introduction of the euro in the European Union or the more recent Asian Currency Unit (ACU) of ASEAN+3, but occurs at a critical time for advancing towards regional integration which, together with the Bank of ALBA and the Bank of the South on the financial side, and big-national companies (including the newly created ALBA-Alimentos) on the production side, will meet the demands that a crisis of the international financial and economic system poses as a challenge for Latin America.

Related Information:

One more step in Latin American financial and trade integration, by IFIs Latin American Monitor

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