"The US Dollar - Panic of 2005"

By Ricardo C. Amaral

February 23, 2005

Now that South Korea, and Russia have started selling their US dollar reserves, the central bankers of the other countries from around the world have to start selling their US dollar positions as well; otherwise they will look foolish in their countries, and to the international central banking community. How they will be able to justify, holding the US dollar positions when we all know that the US dollar will have a steep decline in 2005.

Now that the stampede is about to speed up around the world, the US dollar should decline to at least the range of $ 1.50 – $ 1.60 to Euro 1.00 in the near future.

If the stampede becomes a “Panic Selling,” then we will have a major international monetary crisis in the world, because of this steep US dollar decline in world markets.

Now we know which central bankers are the smart ones; they are trying to get rid of their US dollar positions, before the rest of the heard realizes what is going on.

The central bankers, who don’t dump their US dollars as soon as possible, will look foolish in the future, and they will have to do a lot of explaining to the people of their countries. Why their monetary reserves lost so much value, and they stayed in the sidelines watching the decline of the US dollar without taking any action?

In the future we will refer to this historic period as the “PANIC of 2005.”

Copyright © 2005 All rights reserved.

By: Ricardo C. Amaral

Author / Economist

brazilamaral@yahoo.com

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Quoting from Reuters – February 22, 2005

“Dollar sinks as South Korean reserve shift weighs”

The dollar tumbled on Tuesday as markets grew concerned about the likely impact of South Korea's plan to diversify its reserves out of U.S. assets, pushing the currency below key technical support levels.

South Korea's central bank, which holds a large chunk of U.S. Treasuries, said on Monday it planned to spread its reserves, which are the world's fourth largest, among a greater variety of currencies.

"The dollar is under pressure. This started early in the Far East, with news of South Korea's plan to change reserve ratios," said Andrew Busch, global FX strategist, capital markets, with Harris Nesbitt in Chicago.

"It comes on the heels of Russia saying the same thing. This has fueled speculation that Japan may do the same. That basically hit us and it ignited the euro to rally and continue to put in new highs" against the dollar, Busch said.

Late afternoon in New York, the euro was trading around $1.3252, up about 1.5 percent from late on Monday.

How long the news will weigh on the dollar depends in part on whether the euro pushes above a key resistance area around $1.3270, said Tim Mazanec, senior currency strategist with Investors Bank & Trust in Boston.

According to U.S. Treasury data, South Korean public and private investors hold $69 billion of Treasury debt, while the central bank's foreign exchange reserves are worth some $200 billion.

…Following South Korea's remarks, the dollar tumbled to multi-week lows against most major currencies, seven-year lows against the Korean won and 22-year lows against the New Zealand dollar….Against the yen , the dollar was at 104.00 yen, down 1.5 percent from late Monday.



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February 22, 2005

The above Reuters report might be indication that the stampede to dump the US Dollar that I mentioned in various articles in early 2002 - is underway.

Here I am quoting from my letter to the president of the “European Central Bank” dated December 12, 2001. This letter was published on various newspapers and magazine articles in early 2002.

…The long-term US trade imbalances have created a large pool of US dollars in the hands of relatively few central banks around the world. These nations continue to run large trade surpluses with the United States, and they continue to increase the pool of US dollars held by their central banks.

Forbes Magazine's columnist Steve Hanke estimates that today 70 percent of US currency circulates outside the United States. The major holders of this currency are the euro countries, Japan, China, Hong Kong, Taiwan, South Korea, Indonesia, and Singapore.

Probably today, there is an oversupply of US dollars outside of the United States. Gold at US$ 295/oz might be undervalued when compared to the US dollar.

At US$ 295/oz gold provides about 15 percent of official world monetary liquidity. Central banks hold only one-third of the above ground gold supply available. Gold is the second largest component of international monetary reserves after the US dollar.

Gold and the euro will became increasingly important parts of the international monetary reserve system and their gains will be at the expense of the US dollar.

If any of these countries decides to move their monetary reserves from the US dollar into gold, the price of gold would increase versus the US dollar. If that happens in the near future we will have a major international monetary crisis in the world.

About 75 percent of the US dollars circulating outside the United States are in the hands of these few Asian central banks, and if any one of these countries decides to sell their US dollar monetary reserves to buy gold it will produce a stampede to exit the US dollar, creating a gold and euro buying panic.

Remember the euro countries also have a large supply of US dollars, which they can use to buy gold. When the European Central Bank moves from US dollar into gold, the euro will become stronger versus the US dollar, in turn giving an incentive to the other countries to move their international monetary reserves also from US dollar into euro or gold.

When this US dollar collapse becomes reality, the less developed countries will be the most devastated by this event, because these countries hold only a small fraction of their reserves in gold or euro.

This oversupply of US dollar circulation outside the United States might prove to be the Achilles heel of the US economy and also can become a nightmare to the Federal Reserve. The Federal Reserve would need to raise interest rates in the US, creating a major problem for the US economy and the financial markets.

I believe that it will be too risky for Brazil to adopt the US dollar because of this oversupply of US dollars circulating around the world. It will be better for the Brazilian economy in the long run for Brazil to adopt the euro.

The current US dollar based international financial system is about to go through a dramatic change because of the new competition from the euro. I don't know, when or what will trigger the coming events, since no finance minister or central banker wants to be blamed for launching the world into a major international monetary crisis.

Copyright © 2005 All rights reserved.

By: Ricardo C. Amaral

Author / Economist

brazilamaral@yahoo.com

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US Economy -- Year 2005 and Beyond

November 5, 2004

“Economic Forecast for the US Economy for the Year 2005 and Beyond.”

By: Ricardo C. Amaral

If you have been reading most of my articles, then you know that I am very pessimistic about the direction that the US economy is taking.

In my opinion we are heading for a worldwide depression, probably even worse than the depression of the 1930's. The US economy is heading south and it is picking up speed.

The Bush administration's policies are a sure bet for a new economic depression. I have no doubts about that. We have a very weak economic team running economic policy in the United States today.

Here are my predictions for the year 2005 and beyond for the US economy:

1) The US dollar should decline further during the year 2005 at least to the range of:

US$ 1.50 - US$ 1.60 equal 1 Euro.

2) Gold should increase in price from the current $440 price to around to $ 500.

3) The stock market should decline in the next 3 to 4 years in the range from 30 to 50 percent from current levels. (There are many reasons for that decline to become reality.)

Market closings for November 5, 2004:

Dow Jones - 10,388

Nasdaq - 2,039

S&P 500 - 1,166

Market will trade in the following range in the next 3 to 4 years:

Dow Jones from 7,300 to 5,200

Nasdaq from 1,400 to 1,000

S&P 500 from 800 to 600

4) The real estate bubble will burst in the near future when interest rates starts rising to higher levels. Housing should lose in value from 25 to 40 percent depending where the real estate is located. (The actual price of real estate will decline in real terms, since inflation is very low)

5) To stabilize the US dollar decline, the US Federal Reserve will need to raise the Fed Funds rate to a level between 4 and 5 percent by the end of 2005. As the US Federal Reserve increases the Fed Funds rate at this fast rate, the US economy growth rate will decline accordingly; in turn helping the implosion process of the US economy.

6) Outsourcing American jobs to foreign lands will help the implosion process of the American economy. It is open season on American jobs, and millions of American jobs are leaving the US for cheaper labor places. Americans want equality, in terms of wages, equality is at the 50 cents per hour without company benefits. In the future, Americans will get what they are wishing for.

7) Companies of every size will transfer the responsibility of their pension plans to the US government. Most of the people now receiving pensions from these companies will receive a very large cut on their pension benefits when the pension responsibility is transferred to the US government: Pension Benefit Guaranty Corporation's (PBGC)

These large cuts in pension income will result in a reduction in spending by pensioners, and in another important negative trend to affect the US economy in the coming years. (We are talking about millions of retired people here in the US.)

It is pathetic to see a country such as the United States to decline economically so fast. But gross government mismanagement will do it every time.

Without taking in consideration the US government’s usual published misinformation, the real rate of unemployment in the United States should be in the range of 13 to 15 percent, not the fictitious number published every month by the Labor Department of around 5.6 percent. The unemployment rate will increase drastically in coming months and years, as the US economy continues to deteriorate on its race to the bottom.

After reading one of my articles someone asked me: "Are you able to suggest financial refuge for those of us who are small landowners and investors?"

All I can say is that the risks are too high here in the US today. I would not invest any money in the stock market. The housing bubble is ready to burst. The only place that makes sense to park your money is in U.S. Government securities - "TIPS"

Below is brief information about these US government securities. Better safe than sorry.

Cash is king when the S… hits the fan. If you have cash on hand, after a major market decline, then you can pick up the pieces for a fraction of its previous price.

Copyright © 2004 All rights reserved.

By: Ricardo C. Amaral

Author / Economist

brazilamaral@yahoo.com

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U.S. Government Securities - "TIPS" (Treasury Inflation-Protected Securities):

Background

The first issuance of TIPS was in February 1997. Now there are seven years of TIPS history, and the TIPS market, as of 11/30/03, has more than $176 billion, or 4.9%, of the total $3.6 trillion outstanding marketable Treasury debt held by the public. The U.S. Treasury department, under both Democratic and Republican leadership, has assured investors that they are an integral part of the government's debt management strategy. The current Administration's stated policy is to keep the TIPS program in place without a review for change for at least another five years, and has increased the new-issuance frequency from three to four times

How They Work

Currently, 10-year TIPS yield 1.96%. That is 2.29% less than the 4.25% that one will get with a 10-year U.S. Treasury note (the cash bond). The principal is adjusted to inflation and semi-annual interest payments are based on the inflation-adjusted principal at the same time interest is paid. As long as inflation remains greater than 2.3% - the difference between the regular Treasury's 4.25% yield and the 1.96% TIPS yield - TIPS are a bet. Like all U.S. Government securities, TIPS are guaranteed to return 100% of original par value even if deflation caused the principal value to fall below 100 as the Treasury will make up the difference when the principal is repaid at maturity.

Safety

Like all U.S. government securities, TIPS are guaranteed to return 100% of the par amount at maturity, even in deflation.

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The Coming Economic Depression.

Published on “The Brasilians” newspaper in December 2002

“The Coming Economic Depression.”

By: Ricardo C. Amaral

We are in the beginning of a deflationary cycle; that means that prices will decline. The economies of Japan and Germany are already suffering because of this deflationary spiral. Few years ago many economists claimed that they had tamed the economic cycle, and that deep recessions and depressions were things of the past. When I read articles about that, I thought they were completely wrong.

The truth is the world is overdue for a new economic depression. Historically we had a depression in the world once every 55 to 60 years. The last world depression was over 60 years ago. A Russian economist, Nikolai Kondratieff, published a study in 1926 showing that a very long-term economic cycle existed. His major premise was that capitalist economies had a pattern of long wave cycles of boom and bust. The bust cycle repeated itself approximately every 60 years. If you had read Kondratieff's paper in 1926, you would have known that an economic depression was around the corner.

Kondratieff identified four distinct phases the economy goes through during each cycle: 1) Inflationary growth, 2) Stagflation, 3) Deflationary growth, and finally 4) Depression—falling prices, falling stock prices, falling profits, debt collapse.

As the stock market is collapsing, a number of corporate scandals emerge such as Enron, WorldCom, Global Crossing, Adelphia Communications, Arthur Anderson and many others. As the debt load reaches new highs in the economy, the result is a record-breaking number of personal and corporate bankruptcies, as is the case in the US today.

There are many countries around the world whose economies are in a state of deep economic depression such as Argentina, Brazil, Bolivia, Colombia, Paraguay, Venezuela, Uruguay, and also most African countries. This is just a small list of countries in deep economic distress.

We can add to this list of economies in distress, not only the US economy with its $ 8 trillion dollars of cumulative government debt (and continuing to grow), but also the local economies of most states in the United States. The most important states in the US economy are California and New York, and their economies are in shambles. If California was an independent country, its economy would be collapsing today in the same manner as the Argentinean economy.

To put the states' mess in perspective, I quote from an article published by The New York Times on December 9, 2002, "Loss of Boom's Billions Sink California – State With a France-Size Economy Now Has a Pacific-Size Deficit." The article said: "State officials are proposing deep reductions in education, health services and other programs to deal with a budget shortfall that could total $ 25 billion in the next 18 months. "That's a hole so deep and so vast that even if we fired every single person on the state payroll—every park ranger, every college professor and every Highway Patrol officer—we would still be more than $ 6 billion short," said the Assembly speaker, Herb J. Wesson Jr., a Democrat."

In the past, a major war was the way out of a economic depression. Maybe that solution will be used by the US one more time to restart its economy—a major war contributes to ending the depression phase, and leads the economy to the first phase of the cycle once again. The big war has to be started somewhere—even in Iraq.

Economic War

It is very hard for any country to create good paying jobs for everyone, to build a solid middle class and in turn generate economic growth and prosperity. Each year that goes by, it becomes even harder to create new jobs in the economy.

In 1995, a book was published , "The End of Work" by Jeremy Rifkin, which described in detail the current and future trends in the job market. I recommend reading that book to anyone who wants to understand the current catastrophic job market.

I will quote the following from Jeremy Rifkin's mind-opening book. He wrote in the introduction:

"Global unemployment has now reached its highest level since the great depression of the 1930's. More than 800 million human beings are now unemployed or underemployed in the world. That figure is likely to rise sharply between now and the turn of the century as millions of new entrants into the workforce find themselves without jobs, many victims of a technology revolution that is fast replacing human beings with machines in virtually every sector and industry of the global economy.

...In the past, when new technologies have replaced workers in a given sector, new sectors have always emerged to absorb the displaced laborers. Today, all three of the traditional sectors of the economy—agriculture, manufacturing, and services—are experiencing technological displacement, forcing millions onto the unemployment rolls. The only new sector emerging is the knowledge sector, made up of a small elite of entrepreneurs, scientists, technicians, computer programmers, professional educators and consultants. While this sector is growing, it is not expected to absorb more than a fraction of the hundreds of millions who will be eliminated in the next several decades in the wake of revolutionary advances in the information and communications sciences.

...Now, for the first time, human labor is being systematically eliminated from the production process.

...Substituting software for employees...To begin with, more than 75 percent of the labor force in most industrial nations engage in work that is little more than simple repetitive tasks. Automated machinery, robots, and increasingly sophisticated computers can perform many if not most of these jobs. In the United States alone, that means that in the years ahead more than 90 million jobs in the labor force of 124 million are potentially vulnerable to replacement by machines. With current surveys showing that less than 5 percent of companies around the world have even begun to make the transition to the new machine culture, massive unemployment of the kind never before experienced seems all but inevitable in the coming decades.

...A study was published in 1989 by the International Metalworkers Federation in Geneva forecasting that within thirty years (by the year 2019), as little as 2 percent of the world's current labor force will be needed to produce all the goods necessary for total demand." I want to remind you that it is 2 percent of today's world labor force and not 2 percent of the world labor force in 2019, which could have many more millions of people.

The Current Job Market

As we can see, it will become even harder for countries to create jobs in the future for their population. A job, any type of job, it is worth saving to keep most of the members of the population employed. Keeping jobs in your country has become more important than ever before.

The Star-Ledger, the largest newspaper in New Jersey, had a front page article a few months ago saying that: when people in New Jersey who were on welfare needed information about their welfare benefits, they called a number, and the people answering their questions were located in Bombay, India. To pay lower wages and save some money, New Jersey State exported many New Jersey government jobs to Bombay, India.

In November 2002, George Bush said that in the next two years he would privatize over 850,000 federal government jobs. That means that most of these jobs will be transferred to companies that pay lower wages with no benefits. I will not be surprised if most of these federal government jobs also are exported to India or Mainland China as well.

I see first hand on a daily basis, when I go to the labor department, what is happening to unemployed workers in New Jersey. Two people were evicted from their homes recently. Another person was in the process of his car being repossessed. Three other people have filed for bankruptcy protection under chapter-7. And most of the other people, who have used up their unemployment extensions, are now depleting any savings that they have left for their retirement. These people have no idea how they will be able to manage financially, when they get to retirement age, and all their savings are gone.

The situation is getting more and more scary by the day, since I see a drastic increase of people who are losing their jobs and coming to the labor department to ask for help. The quality of the people unemployed is mind boggling, since 50 % of today's unemployed have at least a college degree. One of the people that I see at the labor department is a young man who graduated from Harvard University, and he also has an MBA from Wharton School of the University of Pennsylvania. Even with these outstanding credentials, he has been looking for a suitable job for over a year.

For the first time in US history, 50 percent of the people who are unemployed are well- educated people. Does it make any difference if the unemployed people are well educated or if they are blue color workers? You bet it does.

The well-educated people can see that the people in Washington do not have a clue about economic policy. The economy is going to hell, and the only thing that the Bush administration can come up with is tax cuts. Tax cuts will not help the growing number of unemployed people in the US, because if your income is $ 0 for the year, your taxes also will be automatically $ 0. The Bush administration has a terrible record on job creation—since George Bush was selected as president of the United States by the US Supreme Court two years ago, the private sector of the US economy has lost over 2.5 million jobs.

I believe that the Dow Jones will sink to the 5,000 to 6,000 levels when the US corporations start expensing their real pension costs, plus the costs of stock options, and when they stop fudging their numbers. When many US corporations start reporting more realistic numbers to the public, their earnings will go down—and the stock prices will follow. It is well understood that when corporations such as General Motors, and Ford are in trouble at the same time—that means that the entire US economy is in trouble.

The Federal Reserve is running out of room. They can lower interest rates to 0 % as in Japan, but they will not be able to restart the US economy. With so much over capacity in the US economy and around the world, which industry will be able to take advantage of low interest rates? Maybe the Bush administration might be expecting a new economic boom in the telecom industry or the airline industry. The housing bubble is ready to burst.

So much hype for the American dream, but according to the Bureau of Labor Statistics out of 100 people that start working at age 25, by age 65—1% are wealthy, 4% have enough money to retire, 3% are still working (can't afford to quit), 63% depend on Social Security, friends or charity, 29% are dead. The reality is most Americans retire in poverty after working for 45 years.

For the people who are unemployed, the economic depression is already here. For the people who still have jobs, they know that if they lose their jobs it will be almost impossible to find a new job. The difference between past recessions and the current job slump, is that the people laid-off in the past, would be rehired when the economy recovered. This time around most people's jobs have gone forever.

We are in the beginning stages of a worldwide depression. The Bush administration recognizes the reality—the best days of the American economy are long gone, and today the system is running on borrowed money. The federal government, the states, the companies and the public are all surviving on credit. How far can this situation keep going on before the house of cards collapses?

Copyright © 2002 All rights reserved.

By Ricardo C. Amaral

Author and Economist

brazilamaral@yahoo.com

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Brazil and the Euro - Part 5

In December 2001 I wrote a letter to the president of the European Central Bank (See copy of the original letter below). One month later I received a letter from the European Central Bank (ECB) in response to my letter. In March 2002 I wrote an article which was published on a Brazilian newspaper were I quote my letter and the response of the ECB.

Since I sent the enclosed letter to the president of the European Central Bank in December 2001 the US dollar has declined over 50 percent in value against the Euro, and gold has increased in value from $ 295 to around $ 420 today, an increase of approximalelly 43 percent.

When I wrote that letter to the European Central Bank in December of 2001 many people were predicting that the Euro was going to fall further in relation to the US dollar. When I published the content of my letter in March 2002 I received many letters and emails saying how I was negative, I did not know what I was talking about, and so on.

I also wrote an article which was published in June 2002 - “The Euro, Now”

The information that follows I am quoting from that article:

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Brazil and the Euro – Part V

Published on “Brazzil” magazine in June 2002:

“The Euro, Now”

By: Ricardo C. Amaral

On December 12, 2001 I sent the enclosed letter to the president of the European Central Bank, regarding Brazil adopting the euro as its new currency. In January 2002. I received a letter from a senior official of the European Central Bank in response to my letter. I was pleasantly surprised by the content of that letter. It is clear to me by their answer, that the door is open to Brazil at the European Central Bank, if Brazil decides to adopt the euro as its new currency.

In my letter to the president of the European Central Bank I mentioned that the US dollar was overvalued over the price of gold at US$ 295/oz at that time and the euro trading at US$ .85¢. Six months later, on June 4, 2002, gold was trading at US$ 325/oz and the euro was trading at US$ .95¢; during this period the US dollar declined in value by 10.2 percent in relation to gold and also declined by 11.8 percent in relation to the euro.

The alarm bells finally started ringing in the United States and abroad. The Business Week magazine issue of May 6, 2002 had an article entitled "Debt Overseas Stirs up Trouble at Home, " in which the magazine stated, "The growing current-account deficit might set the U.S. up for a fall. U.S. financial obligations to the rest of the world are once again on the rise as America grows ever more dependent on foreign capital to finance its growth. Back in March, Federal Reserve Chairman Alan Greenspan noted that over the past six years, about 40 percent of the increase in the U.S. capital stock was financed by foreign investment, a pattern that will require an ever-larger flow of interest payments going out to foreigners. "Countries that have gone down this path invariably have run into trouble," said Greenspan, "and so would we."

The Economist magazine issue of April 27th- May 3rd, 2002, also had a similar article on the US current-account deficit. It was called "The O'Neill doctrine". According to the British publication, "America's huge external deficit is an accident waiting to happen. (...) The International Monetary Fund says that America's current-account deficit poses one of the biggest risks to the world economy. (...) If capital inflows were to dry up, the current-account deficit would have to shrink, either through a slump in domestic demand or a fall in the dollar, or both.

"A study by the Federal Reserve of large current-account deficits in developed economies found that deficits usually began to reverse when they exceeded 5 percent of GDP. And this adjustment was accompanied by an average fall in the nominal exchange rate of 40 percent along with a sharp slowdown in GDP growth. America is likely to move into this danger-zone by the end of the year."

The New York Times published on May 2, 2002, the article "Dollar Falls as Top Official Casts Doubt on Intervention". They wrote: "After saying his goal was to avoid upsetting the financial markets, Treasury Secretary Paul H. O'Neill did just that today by sparring with members of a Congressional committee about the nation's financial condition and leaving some investors with doubts about his willingness to defend the weakening dollar.

On May 16, 2002, The New York Times reported in an article by Jeff Madrick that Jerry Jasinowski, head of the National Association of Manufacturers; Thomas Palley, assistant director of policy at the A.F.L.- C.I.O.; and J. Fred Bergsten, of the Institute of International economics, have argued that the dollar is overvalued 20 to 25 percent. (...) The greater danger is that a change in dollar policy could precipitate a run on the dollar and the very collapse we fear most."

The Washington Post had an article on May 29, 2002 by Robert J. Samuelson: Superdollar: Friend or Foe " In it, Samuelson writes, "If you want to scare yourself, contemplate the following. The dollar begins to fall. That is, its value slips relative to other currencies. Foreigners with massive investments in U.S. stocks and bonds begin to sell their holdings. They fear currency losses on their American investments because a depreciated dollar would fetch less of their own money. The selling then feeds on itself. The stock market swoons. American consumer confidence withers. The recession resumes and spreads to the rest of the world through lower U.S. imports. (…) There are huge foreign investments in the United States that could be sold quickly. At the end of 2001, foreigners owned $1.7 trillion of U.S. stocks and $3.2 trillion of government and corporate bonds. The conditions for a dollar crisis exist, but that doesn't mean one will happen".

Avoiding Chaos in Brazil

The economic situation in Argentina has been deteriorating and has become chaotic. I don't know why the Brazilian government does not adopt the euro immediately to try to stop the coming economic catastrophe and collapse of the Brazilian economy similar to the Argentinean experience.

…There is an option available to the Brazilian government to avoid the possible collapse of the Brazilian economy similar to what is happening in Argentina. The only way out to avoid an economic meltdown of the Brazilian economy is for Brazil to adopt the euro immediately, and use the strength of the euro as a support to hold up the Brazilian economy.

Now that we know for a fact that adopting the euro is a viable option for Brazil, then it is imperative that the Brazilian government moves in that direction as soon as possible, before the smart money starts leaving Brazil and starts a stampede.

Here is a copy of the letter to the European Central Bank:

December 12, 2001

Dr. Willem F. Duisenberg

President

European Central Bank

Postfach 16 03 19

D-60066 Frankfurt am Main

Germany

Dear Dr. Duisenberg:

In the last two years I have written various newspaper articles published here in the United States regarding Brazil and the euro. Enclosed is a copy of my last article of that series. I have been recommending that Brazil replace its current currency the Real for the currency of the European Monetary Union the euro.

In the coming years most countries of the world will have to make a drastic decision; they will have to decide if they will adopt as their new currency the euro, the US dollar or some other currency from Asia. I believe that Brazil should adopt the euro and also should integrate its economy with the European Union's economy.

Keep in mind that it will be just a matter of time for the European Central Bank to be forced to deal with that issue triggered by some major international monetary crisis.

Today, the Brazilian economy has an Achilles heel, which is its currency the real. On January 1, 2002, the international monetary game played in the last 30 years comes to an end. Starting in January the US dollar will not be the only game in town. I believe the euro will become a major competitor to the US dollar, and will be accepted around the world as a major currency. The euro will become an important part of the monetary reserves of most countries.

When the time comes for the European Monetary Union to make the decision to accept Brazil as one of its members, that decision will be very important not only to Brazil, but will have a major impact on the international monetary scene for decades to come. It will be for the benefit of the members of the European Monetary Union to offer Brazil membership in that monetary club.

Brazil has a young and vibrant population and can offer to the European Union a growing market with 170 million people. The adoption of the euro by Brazil would stabilize the Brazilian economy and would open the door to many new economic opportunities between Brazil and the members of the European Monetary Union. This new stable monetary environment would provide new opportunities for European investments in Brazil.

I want you to keep in mind when the European Monetary Union debates the merits of accepting Brazil for membership, that the country Brazil is one of the jewels of our planet. Brazil has a privileged geopolitical location on our globe. Brazil has an up- coming emerging market economy with abundant natural resources, including the magnificent Amazon jungle, and also a modern economy evolving and adapting very fast to accommodate the new technologies developed around the world.

The next time that Brazil decides to change its currency again, they will have only two alternatives to choose from this time around; either they adopt the euro or they adopt the US dollar. I believe that it would be a privilege for the European Monetary Union to have Brazil as a member of that club. Brazil and the members of the European Monetary Union will have much more to gain from that association than if Brazil adopts the US dollar. Please be prepared in the future to welcome and to offer Brazil membership to the European Monetary Union.

I believe that the Brazilian economy matches much better with the economies of the countries which comprise the European Monetary Union than to the economy of the United States. From a Brazilian point of view, it is more appealing to adopt the euro instead of the US dollar, because of the US dollar's vulnerability to the international monetary market system.

The long-term US trade imbalances have created a large pool of US dollars in the hands of relatively few central banks around the world. These nations continue to run large trade surpluses with the United States, and they continue to increase the pool of US dollars held by their central banks.

Forbes Magazine's columnist Steve Hanke estimates that today 70 percent of US currency circulates outside the United States. The major holders of this currency are the euro countries, Japan, China, Hong Kong, Taiwan, South Korea, Indonesia, and Singapore.

Probably today, there is an oversupply of US dollars outside of the United States. Gold at US$ 295/oz might be undervalued when compared to the US dollar.

At US$ 295/oz gold provides about 15 percent of official world monetary liquidity. Central banks hold only one-third of the above ground gold supply available. Gold is the second largest component of international monetary reserves after the US dollar.

Gold and the euro will became increasingly important parts of the international monetary reserve system and their gains will be at the expense of the US dollar.

If any of these countries decides to move their monetary reserves from the US dollar into gold, the price of gold would increase versus the US dollar. If that happens in the near future we will have a major international monetary crisis in the world.

About 75 percent of the US dollars circulating outside the United States are in the hands of these few Asian central banks, and if any one of these countries decides to sell their US dollar monetary reserves to buy gold it will produce a stampede to exit the US dollar, creating a gold and euro buying panic.

Remember the euro countries also have a large supply of US dollars, which they can use to buy gold. When the European Central Bank moves from US dollar into gold, the euro will become stronger versus the US dollar, in turn giving an incentive to the other countries to move their international monetary reserves also from US dollar into euro or gold.

When this US dollar collapse becomes reality, the less developed countries will be the most devastated by this event, because these countries hold only a small fraction of their reserves in gold or euro.

This oversupply of US dollar circulation outside the United States might prove to be the Achilles heel of the US economy and also can become a nightmare to the Federal Reserve. The Federal Reserve would need to raise interest rates in the US, creating a major problem for the US economy and the financial markets.

I believe that it will be too risky for Brazil to adopt the US dollar because of this oversupply of US dollars circulating around the world. It will be better for the Brazilian economy in the long run for Brazil to adopt the euro.

The current US dollar based international financial system is about to go through a dramatic change because of the new competition from the euro. I don't know, when or what will trigger the coming events, since no finance minister or central banker wants to be blamed for launching the world into a major international monetary crisis.

I hope you will enjoy reading the enclosed article about Brazil adopting the euro, and please share this information with the Finance Ministers of the countries which are members of the European Monetary Union.

Thank you for your attention to this matter.

Sincerely,

Ricardo C. Amaral

This article was originally published on “The Brazilians” in March 2002.

Copyright © 2002 All rights reserved.

By: Ricardo C. Amaral

Author / Economist

brazilamaral@yahoo.com

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Brazil and the Euro - Part 4

Brazil and the Euro - Part lV - Published in October 2001

“Adoption of the Euro is the only solution to fix the Brazilian economy.”

Today, the adoption of the Euro by Brazil has become a critical issue and one of the few options available to save the Brazilian economy from further decline.
By: Ricardo C. Amaral

In the last two years I have written many articles recommending that Brazil adopt the Euro as the new Brazilian currency. Today, the adoption of the Euro by Brazil has become a critical issue and one of the few options available to save the Brazilian economy from further decline.

Today, we might be heading to a new world wide Great Depression as in the 1930's. Japan's economy may already be in a depression. The Japanese banking system is in deep trouble and things will get only worse for them in the near future. China had over 200 million people unemployed at the end of 2000, and the Chinese government is having a terrible time with a growing unemployment problem as people surged into cities and towns in search of work. China's unemployment will rise even further as a result of this new economic depression and the World Trade Center tragedy of September 11, 2001.

This tragedy will affect the economies of all economic trading partners of the United States, including Japan and China. Another economy that is in deep trouble today, is the economy of Argentina. Since Argentina is a major trading partner of Brazil, this Argentinean economic decline, will have an adverse and negative impact on the Brazilian economy.

In the last twelve months the current Brazilian currency, the Real, lost another 53 % of its value against the US dollar. The Brazilian currency which was trading at US $ 1.00 = R$ 1.85, in October 2000, reached a new low versus the US dollar on September 21, 2001 when the exchange rate was at US $ 1.00 = R$ 2.82.

On January 31, 1996 the exchange rate was US $ 1.00 = R$ .95, and since then the Brazilian currency lost 66 % of its value against the US dollar. That means that if you had invested US $ 1.00 five years ago in Brazil, that US $ 1.00 would be worth only US $ .34¢ today, and you would have lost 2/3 of the value of your investment in terms of dollars. This type of performance is completely unacceptable. What is happening in Brazil is that the government is allowing the country to become poorer and decapitalized.

Why is the Brazilian economy shrinking?

The Brazilian economy is being decapitalized—every individual in Brazil is getting poorer by the day, including the country itself. All you need is a little common sense to realize that the Brazilian economy is being decapitalized and its currency is being debased. The Brazilian gross domestic product (GDP) was US $ 1 trillion dollars for the year 1998, compared with the current (GDP) of US $ 500 billion dollars. In terms of the US dollar the Brazilian economy lost half of its value since the end of 1998. When a country allows its currency to become debased the result is that you will have a debased economy as well.

Why should anyone invest in Brazil?

What justification does anybody have to invest in Brazil today? Why should anyone in his right mind invest a dime in Brazil— unless you are willing to lose the money you are investing?

In the first article of this series published in the July 1999 issue of "The Brasilians" I wrote the following: "Today the amount of money that international speculators have under their management is becoming mind boggling. The amount of daily currency transactions in global markets is over $ 1.5 trillion dollars. The magnitude of daily currency transactions is a major contributing factor for many countries losing their capacity to defend their weak currencies from the foreign attack of these international money speculators.

These countries don't have the economic reserves necessary to defend their currencies from foreign speculative attacks. It is getting easier for these international speculators to destroy the entire economy of countries such as Russia, Indonesia, Malaysia, Thailand, South Korea, and Brazil. All they have to do is destroy their currency and the economies undergo a complete collapse. It is a form of modern economic warfare."

A weak Real is affecting even the fortunes of billionaires.

As we can see by the table below, even billionaires are affected by this currency and economic debasement of the Brazilian economy. Based on Forbes Magazine's annual list of billionaires, which is published on the first week of July of each year, the following is the ranking and the estimated net worth of Mr. Roberto Marinho, a Brazilian businessman who made the list the last two years:

Name.…………….......…….Date…………………………...Rank…..…NetWorth………. …………………………………….......................................……………(US$bil.)…

Roberto Marinho….(as of July 3, 2000)………………….42………………6.4

Roberto Marinho….(as of July 9, 2001)…………………336……………...1.5

The major culprit for this decrease in wealth is the weak currency—the Real. This unsound currency undermines the entire economy of Brazil including the economic activities of such companies as TV Globo Network (Mr. Roberto Marinho is the owner of this communications empire in Brazil which includes the major television network in Latin America, cable TV, radio stations, and one of the major publishing companies in Brazil—also including a major newspaper and magazines). Because of the combination of a falling currency (the Brazilian Real), and a television and newspaper advertising slump during the year 2001, it is very possible that Mr. Roberto Marinho will not make next year's Forbes list of billionaires.

Should Brazil adopt the Euro as its new currency?

Let's see what Brazil's options are in this matter. On one hand Brazil can adopt the euro as its new currency and be rewarded in a big way in the future -- with monetary stability, lower interest rates, a sound economic environment for investments, and access to European money markets.

On the other hand Brazil can continue to live in the world of illusion and keep its current currency the Real and think that this is a way to keep intact its sovereignty as a country.

I don't know why the people running the government in Brazil think that by keeping a currency, such as the Real, that means that they are keeping the country's sovereignty intact, when the truth is that this little currency by international standards is the source of the debasement of the Brazilian economy.

The old adage says that there are only two things that are certain in life; taxes and death. We can add one more item to this list; that the currency in Brazil (Real) will lose its value in relation to the other major currencies of the world. Why make an investment in Brazil with its shrinking value of the Real unless you are willing to lose your investment over a period of time? How poor do the Brazilian people have to become, before the Brazilian government realizes that they have no other option than to adopt the euro as its new currency?

Today, if you want to invest in Brazil, just wait a little longer and you will be able to pick up the bargains left behind after the wreckage of the Brazilian economy. How many sound Brazilian companies have to get in financial trouble because of the very weak Brazilian currency, before the government realizes that the Brazilian economy it will be in much better shape if Brazil adopts the euro as its new currency.

Brazilians don't trust their Brazilian currency.

Why do Brazilians have over US $ 150 billion dollars invested outside Brazil? Because they are not fools, and they don't trust the country's currency -- such as the Cruzeiro, the Cruzado, the Real or any new weak currency they might adopt in the future. If Brazilians don't trust their own currency, how can we expect people from other countries to have any trust in the soundness of the Brazilian currency? If you are a Brazilian, you know that to protect your assets you have to transfer them out of Brazil to a safer and more stable economic environment, such as the major countries of the European Union or the United States.

The adoption of the euro by Brazil would stop this Brazilian capital flight and would provide a sound economic environment in Brazil, with a sound and stable currency which Brazilians can trust; then Brazilians would be able to bring back home the US $ 150 billion dollars invested in foreign lands.

Why Brazil should adopt the euro as its new currency.

Abandoning a weak national currency such as the Real in favor of a stronger international currency as the euro would eliminate currency and maturity mismatches, because debts would be denominated in the same unit as a company's cash flow. It would also allow Brazil to take out long-term loans.

The adoption of the euro by Brazil would bring about safety and stability for capital mobility. Long-term interest rates would decline and become less volatile -- as we have seen in Europe, where interest rates have gone down in Ireland, Italy, Portugal and Spain -- making it easier to cut budget deficits and promote growth.

It is worthwhile to repeat again a portion of my article that was published last year, because of what has been happening to the Brazilian Real in the last 12 months. If you want a more detailed explanation of the reasons why Brazil should adopt the euro as soon as possible, you can read in the Fall 1999 issue of "Foreign Policy" the following article written by Mr. Ricardo Hausmann, chief economist of the Inter-American Development Bank, "Should There be Five Currencies or One Hundred and Five?"

What do floating currencies mean to Latin American countries?

Some highlights from Mr. Hausmann's article follow. He said, "A recent study by the Inter-American Development Bank suggests that Latin American countries with floating currencies end up with financial systems that are 15 to 30 percent smaller than they otherwise would have been. One reason is that letting the exchange rate appreciate in good times and depreciate in bad times reduces the incentive of residents to hold their assets in the domestic currency because it does not help diversify the income risk they already bear. In good times, when incomes are high and people are in a position to save, the value of their previously accumulated savings goes up through currency appreciation. In bad times, when income is low and people might wish to dip into their savings, they find their assets are worth increasingly less because of currency depreciation. Hence, residents of these emerging-market countries will want to hedge their savings by moving them out of the domestic currency."

Mr. Hausmann's article describes how "floating exchange rates in Latin America has increased the volatility of domestic interest rates, making banking a riskier industry. Floating can entail huge costs. It could be the catalyst for a shrinking financial system, as residents move their assets out of the domestic currency. It can cause domestic savings to flee, leaving countries with fewer resources to finance growth. In addition, highly volatile domestic interest rates will make banking riskier and will conspire against the development of long-term markets."

Damage to the Brazilian economy.

The damage to the Brazilian economy is worse than people first realized. The government keeps wasting good monetary reserves to keep this moribund currency barely alive. At the same time the government is selling the government's companies (which is part of the nation's patrimony) to raise money to burn in the lost cause of defending the weak Real.

The other major loss to Brazil is the human capital loss. There are a large number of well educated Brazilians who are moving out of Brazil in their search for a better future (according to Veja magazine July 18, 2001, over 2 million Brazilians live outside Brazil). Many Brazilians unhappy with the economic situation in Brazil, are moving to foreign lands, and in many cases these are the people with better education and skills. They cause a big drain in the pool of skilled workers left in Brazil. This outflow of human capital will have a negative long-term impact on the future economy of the country.

International Monetary Reserves.

Below is a table with the international monetary reserves of select countries as of December 31, 1998. As you can see it is not a good idea to create a new currency for South America. We can estimate that as of December 31, 2001 the monetary reserves for the countries of South America should be much lower than three years ago.

How can the Brazilian government even dream of defending the Real in the long run with such a small amount of monetary reserves? On the other hand the Euro area group of countries have a substantial amount of monetary reserves to keep the euro stable over the long haul. Long-term stability is the name of this game.

………………………………International Monetary Reserves…………………
…………………………………...As of December 31, 1998…………………………
…………………………………………( U.S. $ millions )………………………………
World select areas……………………………………………………………………… …………………………...………….....…..…Reserve………….…Foreign…………
………….....…...Gold……....SDR's………Position……………Exchange…….TOTAL
…………………………………………...….....in IMF……

Euro area……...98,033……..5,529………….25,688………………281,538…….410,788

South America*...6,053……….753……………1,710………………115,781…...…124,297

Japan…………1,194……...2,663……………9,593………………203,215….....216,665

China………….624……..…..676……………3,553………………144,959…......149,812

Brazil*………..1,358………..…..2………………...0……………....42,478….....….43,938

Note: Brazil figures included on total for South America.

Why will the Euro provide macroeconomic stability for its members?

The members of the Executive Board of the European Central Bank (ECB) are not there to represent their countries of origin. They are there to provide stability to the euro and they look at Euroland as a whole when making their policy. The euro is a monetary arrangement, and its monetary policy will be adopted independent of political control from its members.

This way of operating keeps the politicians out of the decision-making process and reduces the risk of them playing their political games with the country's monetary and currency systems. I am a firm believer that if the economic policies adopted by the (ECB) are good enough for such a diversified group of countries as France, Belgium, Germany, Netherlands, and Italy, then such policies also will be good for Brazil. The Brazilian economy will be better off under the euro system than under the fragile and weak Brazilian currency.

The euro countries today have international monetary reserves valued at over US $ 411 billion dollars. They also have a population estimated at 320 million people and a gross domestic product (GDP) of US $ 7 trillion dollars. After Norway, Sweden, Denmark and the U.K. also adopt the euro, the total euro area international monetary reserves will increase to over US $ 500 billion dollars and the total population will be around 400 million people, and the GDP should increase by another US $ 1 trillion dollars.

Brazil will be better of as a nation under the euro currency.

The United States has a much stronger and powerful economy because it operates with one currency -- the US dollar. The economy of the United States would not be as strong if California, New York and Texas -- each had its own currency. We have in the United States different economies operating under a single currency -- Texas has its oil economy, California has its high tech economy, Nebraska has its agricultural economy, but they all operate reasonably well under a single currency, even though some times a change in the value of the US dollar would benefit the economy of one state and hurt the economy of another state at the same time.

Euro the best option for Brazil.

The fact that I have been advocating in my writings that Brazil should adopt the euro as its new currency, has nothing to do with being anti-American. It has to do only with what is best economically from the Brazilian point of view.

It makes more sense economically for Brazil to adopt the euro instead of the American dollar. The Brazilian economy matches much better with the various economies that make up the European Union than the economy of the United States.

I am saying that from a practical point of view after being a controller for various Brazilian companies in the United States in the last 16 years. When I worked for these international trading companies, we had a terrible time finding any products in Brazil that we could sell in the American market. We couldn't compete with the United States in almost anything. The US economy is too far advanced in terms of technology and quality of its products, and because of that the Brazilian companies did not have a fighting chance to enter and compete in the United States market.

The Brazilian companies in general have a better chance to sell their products in the European markets. This is why trading between Brazil and Europe has been expanding very fast in the last 15 years and trading with the United States has been flat. Sure, there are other reasons as well that contribute to that, including the understanding that Europeans have of Brazil and the cultural ties.

The Brazilian economy will be in better shape in the future if Brazil adopts the euro and the Brazilian economy integrates with the Euroland economy. Brazil and Brazilians will become better off under the Euro system than if Brazil tries to continue with its own currency. If Brazil continues on its current path and doesn't fix this currency problem the end result might be a revolution in Brazil, and a possible return to a military dictatorship.

Part lV of this series- originally published by

"The Brasilians,” issue number 317, pg. 4E, October 2001.

Copyright © 2001 All rights reserved.
By: Ricardo C. Amaral
Author and Economist

brazilamaral@yahoo.com

This article was reprinted on “Brazzil” magazine in June 2003.

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Brazil and the Euro - Part 3

Brazil and the Euro - Part III - Published in November 2000.

“How can currency stability be achieved for the Brazilian economy?”

Today, the Brazilian government is missing a great opportunity to adopt the euro as the new Brazilian currency. After Brazil adopts the euro, Brazil will have eliminated the currency risk between Brazil and the European countries of the European Union. Afterwards, the market place would make the necessary adjustments to the prices of assets in Brazil to reflect the fair market value of these assets in terms of the new euro currency.

By: Ricardo C. Amaral

The original article was published in "The Brasilians", in July 1999, and a follow up article was published in November 1999. Since November of 1999 we had some new developments regarding the new currency —the euro —as follows:

What happened to the value of the euro in relation to the US dollar?

The euro was born January 1, 1999 at an exchange rate of US $ 1.17 to $ 1 euro. The expectation of the creation of the new currency in Europe in the fall of 1998, helped the euro currencies to increase in value in the last six months of 1998. When the euro was born on January 1, 1999, that currency was overvalued by an estimated 9 to 10 percent in relation to the US dollar.

Since its inception in January 1, 1999 at US$ 1.17 the euro steadily declined in value against the US dollar and was quoted at around US$ 0.88 in New York trading on September 28, 2000. The explanation for this 25% decline in value of the euro can be explained as follows.

The first 10 % decline of the euro came about as the euro adjusted itself in relation to the US dollar to reflect the current economic realities behind the two currencies. The euro gave back the 10 % speculative increase that had occurred in the fall of 1998.

The other 15 % decline in the value of the euro can be explained in this quote from an article in Business Week (Oct. 2, 2000 Pg 144); EUROPE CASH IS FLOODING INTO THE U.S. "the financial tidal wave that has washed across the Atlantic is merely investment -- especially direct investment in the booming U.S. economy. European companies have been buying up U.S. outfits large and small -- from Unilever Group's purchase of Ben & Jerry's Homemade ice cream to megadeals like Deutsche Telekom's proposed $50.7 billion takeover of wireless communication company VoiceStream Wireless Corp. European companies made more than $ 170 billion worth of acquisitions in the U.S. in the first half of this year. As European companies have converted euros into dollars to close their purchases, the euro has hit low after low."

The Business Week article also mentioned that from the beginning of 1998 through the second quarter of 2000 the U.S. attracted more than $ 332 billion in foreign direct investment (FDI) from the euro countries (estimates from Morgan Stanley). Morgan Stanley also estimates $162 billion of foreign cash or stock purchases of U.S. companies were pending as of September 8, 2000.

Where is the bottom for the euro?

The euro can reach a bottom as low as 80 ¢ to 75¢ range in the short term. The decline in value of the euro started to have an impact on the earnings of American companies operating in Europe. These lower earnings will affect the price of these stocks in the American stock market. When the American stock market declines and returns to more realistic level, the Europeans will start repatriating their money, and the result will be the increasing value of the euro against the U.S. dollar. Before the end of 2001 the euro can be trading at 1 to 1 ratio in relation to the U.S. dollar.

Danish voters say "No" to euro. Does it really matter?

Let's put things in the right perspective before we get carried away by the Danish rejection of the euro. The euro countries have an estimated population of 350 million people. The European Central Bank (ECB) holds the equivalent of $ 39.6 billion in foreign currency reserves; its 11 member central banks hold an additional $ 222 billion, for a combined total of $ 262 billion in reserves. On the other hand we have Denmark, a country of 5.3 million people and $ 12 billion in foreign currency monetary reserves.

Why did the Danes inflict such an economic blow on themselves? What will happen when their currency comes under speculative attack in the future? Can Denmark prosper in the future, in the new global economy, without the protection afforded by the euro membership?

Greece and the euro.

On June 19, 2000 Greece was accepted by the European Union Council for membership in the new currency the euro. As of January 1, 2001 Greece will became a new member of the euro, bringing to 12 the number of countries that are participating members of that club.

Britain and Sweden.

The "no" vote in Denmark was a vote reflecting the Danish population's anxieties in relation to the future of Denmark's welfare state. In Sweden the population also is worried about the structural reforms that might be necessary when they adopt the euro. Britain eventually will adopt the euro; otherwise they will lose the remaining influence that they still have in European affairs.

A weak euro isn't a failed euro.

Business Week magazine published a article on September 18, 2000 (Pg.61) saying that all the gloom about the euro obscures the fact that the euro is already having a remarkably beneficial effect on Europe. It has stitched together 11 countries' financial systems, decreasing the cost of capital by creating a deeper, more liquid market.

...As a result, companies have issued stocks and bonds at record-breaking levels. Indeed, more euro-denominated than dollar-denominated bonds were issued last year: a staggering $ 600 billion, according to Capital Data Ltd. The money raised is funding acquisitions. As a result, the euro zone economy is being restructured and companies globalized.

The article also says that the euro puts pressure on governments, too. It makes it impossible for euro-zone countries to boost competitiveness by manipulating monetary policy. Instead, they must cut taxes, streamline social security systems, and make other reforms. They end the article by saying "Sure, the euro is weak. But a failure? No way."

Geographic location, and the assumption that the euro was created to be adopted only by European countries.

With today's technologies in computers, communications, satellites, air travel, etc, distance is not an issue to stop any country from adopting the euro as its new currency. I want to bring to your attention the fact that the euro is the official currency of a country in South America —French Guiana belongs to France and the official currency in French Guiana is the euro.

New currency for Mercosul.

On October 8, 2000, the president of the Bank Interamerican of Development (BID) Mr. Enrique Iglesias; he said that it is inevitable that Mercosul adopt a single currency because it is a common market, and the monetary union becomes very important.

I agree with Mr. Iglesias that Brazil needs to adopt a new currency such as the euro, but I don't think the countries of the Mercosul or of South America have the necessary international monetary reserves to create a new strong currency for South America. If they go ahead and create this new currency for South America the Merco or the Bankrupt, either name is fine, this new currency will be doomed from the start — no solid international monetary reserves to back up your currency—no cigar.

The next time the Real (the current Brazilian currency) comes under international speculative attack, the Brazilian international currency reserves (currently 39 billion US dollars) might decline to new dangerously low levels. In turn, exposing the Brazilian economy to exceptional high monetary risk could be avoided by Brazil adopting the euro as its new currency.

A chance of a lifetime.

Today, with the euro "no" vote from Denmark, and all the negative press that the euro has been receiving lately, there is an exceptional opportunity for Brazil to announce that it will adopt the euro immediately. That vote of confidence from the Brazilian government and the Brazilian people towards this new currency would open many doors in Europe, and would give a big boost to the euro in international currency markets.

BRAZIL — It is time to wake up!

Today, the Brazilian government is missing a great opportunity to adopt the euro as the new Brazilian currency. After Brazil adopts the euro, Brazil will have eliminated the currency risk between Brazil and the European countries of the European Union. Europe is a very important exporting market for Brazilian goods and services, and the elimination of the currency risk will help increase the volume of business between Europe and Brazil. Afterwards, the market place would make the necessary adjustments to the prices of assets in Brazil to reflect the fair market value of these assets in terms of the new euro currency.

After Brazil Adopts the euro —as its new currency, the rest of South America will follow its lead and also will adopt the euro. The euro would become the main currency in South America.

Part lll of this series- originally published by

“The Brasilians,” issue number 308, pg. 6E, November 2000.

Copyright © 2000 All rights reserved.

By: Ricardo C. Amaral.

Author and Economist

brazilamaral@yahoo.com

This article was reprinted on “Brazzil” magazine in June 2003.

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