Should Brazil Adopt a New Currency?

Brazzil Magazine

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The following articles were originally published by
The Brasilians, the oldest Brazilian newspaper in
the United States. The Brasilians has been published for 31 years and has a large national circulation.
The articles were published in the newspaper-issues of July 1999 to October 2001. The information on
these articles still is important today, and they open the door for a debate about Brazil’s currency, and
its impact in the future of the Brazilian economy.
by:

Part l – July 1999

How can currency stability be achieved for the Brazilian economy?

If Brazil is thinking of the future, they should think in terms of the Euro. If Brazil wants to base its future policy on
the past, then it should think in terms of the U.S. Dollar or Pound Sterling.

By Ricardo C. Amaral

On January 1, 1999 the rules of the game for international currency speculation have changed in a drastic manner with
the birth of the euro.

The number of currencies which international currency speculators can invest and play their speculative games has
been reduced by 10. In the past, we had the currencies of eleven European countries; today these currencies are being
replaced by one¾ the euro.

In the near future the remaining members of the European Economic Community including such countries as England
and Sweden will adopt the Euro as their currency and become members of the new European Monetary Union (EMU).
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 capability to defend their weak currencies
from foreign attack of these international money speculators.

All they have to do is destroy their currency and the economies undergo a complete collapse. It is a form of
modern economic warfare. Brazil should become a member of the European Union and immediately adopt the euro as its
new currency. Based on sound macroeconomic analysis, this is the best alternative available to Brazil to achieve its goals
of economic growth and currency stability.

The elimination of exchange rate risk between Brazil and the euro countries should stimulate capital flows,
improve trading, and access to capital markets. Sound monetary policy will translate into lower interest rates, and
long-term economic survival and prosperity.

The Euroa historic turning point.

We are at a turning point in history. The U.S. dollar is in the same position today in which the Pound Sterling was at
the end of the First World War. The U.S. dollar replaced the Pound Sterling as the dominant currency in the following
twenty-five years. The best choice among the major currencies of the future is the euro. In a few years there will be three
major currencies: (a) U.S. Dollar, (b) Euro, (c) Yen ( or some other new Asian currency) and the currency of most countries
will not be able to survive with their independent currency policies, including England with the Pound Sterling.

The new European Central Bank under the leadership of the Germans will be recognized as a new leader in
international money matters, and the euro will qualify in short order as a strong international currency. Markets will recognize
the strength and stability of the European Union’s economy, and in the future the euro will be one of the major
reserve currencies in the world.

It will not take twenty-five years this time around for this process to develop. This will occur at a very fast pace. It
would be a smart move for Brazil to apply for membership in the European Union and to adopt the euro immediately as the
new currency in Brazil. Today, countries around the world have official reserves as follows:

Percentage share by currency:

U.S. Dollar = 60 percent of market

Euro Group = 20 percent of market

Yen = 6 percent of market

Other = 14 percent of market

Most people should not be surprised if in ten years the breakdown of official reserves of the countries around the
world will be as follows:

U.S. Dollar = 35 percent of market

Euro Group = 35 percent of market

New Asian Group = 25 percent of market

Other = 5 percent of market

The decline of the U.S. Dollar.

The U.S. dollar and the U.S. economy will encounter many problems in the near future related to the bursting of the
Wall Street bubble, the costs of taking care of an increasing number of elderly citizens, and its over $ 7 trillion of
cumulative government debt.

If Brazil is thinking of the future, they should think in terms of the euro. If Brazil wants to base its future policy on
the past, then it should think in terms of the U.S. dollar or Pound Sterling. Brazil is being pressed by the international
currency speculators to bite the bullet at this point. To best position the Brazilian economy for the future, the Brazilian
government should adopt the euro immediately as its new currency and should plan to bring Brazil as close as possible to the
European Monetary Union.

Why should Brazil make this transition immediately?

The timing is perfect for this transition. This move would give Brazil a chance to go through this period of
economic adjustment at the same time as the European countries. This process would bring the Brazilian and European
economies closer, and would promote further economic integration. If the Brazilian government decides to bring Brazil to the
U.S. dollar group, then Brazil always will play second fiddler to the United States.

On the other hand, membership in the European Monetary Union will mean that Brazil will be treated as an
important member of that group. The adoption of the euro by Brazil would provide the currency stability necessary for
long-term growth, investment, lower interest rates and access to European money markets.

After speaking with some Brazilian newsmen and some Brazilian bankers in the United States, I was surprised at
their response to my questions. They told me that they have not given any thought to the possibility of Brazil belonging to
the European Monetary Union and adopting the "Euro" as its new currency. Everybody seemed surprised by my suggestion.

U.S. Dollar = Yesterday, Euro = Tomorrow.

The Brazilian politicians will try to keep the old game on, but with official reserves around U.S.$ 40 billion it will not
be long before this small reserve is run down to the ground. When this scenario develops, Brazil will be
economically demoralized and in a very weak position to adopt the euro or the U.S. dollar.

If the Brazilian government reserves are run to the ground (a very real possibility) and Brazil becomes bankrupt or in
a similar situation as Russia or Indonesia, then Brazil will be in a very weak position to request membership at that time.

By adopting the euro immediately as its new currency, and working out the details for full membership to the
European Monetary Union, later Brazil will be in a better economic position to meet the requirements for full membership.

Brazil is going through a difficult economic time, because of the new global economy. It is time to wake up and adopt
the euro as its new currency. Keep in mind that this change will have major beneficial long-term consequences and
would place the Brazilian economy on the correct path towards prosperity in the new millennium.

If you want to read other articles by Ricardo C. Amaral, you can find them on the following website: https://www.brazzil.com/amaral.htm

Part l of this series- originally published by

"The Brasilians," issue number 295, pg. 4E, July 1999.

By: Ricardo C. Amaral

Author and Economist

amaral@alumni .fdu.edu

Part II – November 1999

How can currency stability be achieved for the Brazilian economy?

The short-term sacrifices required by the Brazilian people to meet the euro’s requirements will 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.

By: Ricardo C. Amaral

The original article was published by "The Brasilians" issue # 295, July 1999, page # 4E. The current article is in
response to letters received by the editor regarding that article.

Out of the 15 countries which comprise the European Union (EU), 11 countries also belong to the new European
Monetary Union (EMU). The (EMU) country members adopted the new currency the euro,

as of January 1, 1999.

The resulting euro market created an economy with more than US $ 6 trillion in gross domestic product (GDP). If
Brazil becomes a member of the European Monetary Union (EMU) the Brazilian economy would add another 15 % to the size
of the (EMU); an increase of (GDP) to US $ 7 trillion.

There are some (EMU) criteria established by the Maastricht Treaty which countries wishing to join the (EMU)
are required to meet before they are allowed to join the euro group. The criteria are as follows:

Their inflation rate should be within 1.5 percentage points of the three best performing (EMU) countries.

Their exchange rate should be stable in relation to the "Euro".

Their government debt must be less than 60 % of gross domestic product (GDP).

Their government budget deficit must be below 3 % of their (GDP).

Four countries that are members of the European Union (EU) England, Sweden, Denmark and Greece, are not
members of the (EMU). Greece wanted to be a charter member of the (EMU), but they did not meet the economic criteria
for membership. The other three countries decided to wait and see how the euro system experiment actually works
before they decide to become a member of this new system. It is just a matter of time for them to join the club.

Can Brazil qualify for euro membership?

In January 1999 the Brazilian Government budget deficit was around 8.5 % of (GDP). To qualify as a member of the
new euro club, Brazil would need to bring its budget deficit to the 3 % benchmark.

The short-term sacrifices required by the Brazilian people to meet these requirements will 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.

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.

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 ?" (Pg. 65).
Foreign Policy has a website at the following address:

http://www.foreignpolicy.com

What 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."

Mr. Hausmann’s article also describes how "abandoning a weak national currency in favor of a stronger international
or supranational currency 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 countries to take out long-term loans."

The adoption of a supranational currency such as the euro by Brazil would bring the following benefits, according to
Mr. Hausmann’s article: "supranational currencies would be more stable and safer 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."

Why did England and Sweden stay out of the new euro system?

Sweden took a conservative position to first see how the euro system works in practice before they decide to become
a member of that system. England also took the same conservative position, but in the case of England it is hard for them
to give up their national currency because of national pride after being a world power. England was the major world
power until 1918, and the Pound Sterling was the major currency in the world during England’s reign as king of the hill. It is
hard to let go of the past.

Today, England is not even the most influential country in the European Union, and it will soon realize it is time to
move forward into the future, and it will adopt the euro as its new currency, leaving the history books to remind them of
their past as a world power and of the glory days of the Pound Sterling.

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 $ 1.00 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 born on January 1, 1999, that currency was overvalued by an estimated 9 percentage points in relation
to the US dollar.

The euro just adjusted itself in relation to the US dollar from January 1, 1999 rate of US$ 1.17 to the current rate as
of October 22, 1999 of US$ 1.067. The current rate reflects the current economic realities behind the two currencies. I
have no doubt that the euro is here to stay, and it will become a major competitor to the US dollar in the international
financial arena.

A final question raised by my article was regarding the 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. In that regard I want to remind the readers that Brazil and the
United States operated for centuries with the currency of European countries. Brazil was a Portuguese colony until 1822 and
the United States was a British colony until 1776, and before independence these countries operated with the currency
of these European countries. The world has changed a lot since then. Country currencies used to be backed by gold
or silver reserves; in comparison, today what do we have backing up the US dollar?

How about the future value of the US dollar in relation to the euro?

Today, the fortune of countries can change very fast. As we look around the world we can see what happened to
the Soviet Union, Malaysia, Indonesia, Thailand, and Brazil, just to give a few examples of countries with weak currencies.
A strong currency such as the euro implies that the governments behind that currency will protect the value of the
currency, in turn creating a safe environment for investments to flourish and grow.

Yesterday, the Pound Sterling was king, but today England is reevaluating its options and in the near future the
Pound Sterling will be history. Today the US dollar is king, but in the coming years the US dollar also will lose its appeal as
the world changes and new competitors including the euro challenges the US dollar in the international financial arena.
The reality check for the US economy and the value of the US dollar in relation to its competitors is around the corner with
the expenses related to an aging population compounded by the weight of the US $ 7 trillion dollars of cumulative
US government debt.

The United States has a cumulative federal government debt of US$ 5.5 trillion dollars plus other borrowings from
various funds including the following amounts as of July 1999: Social Security US$ 845 billion dollars, Medicare US$ 148
billion dollars, Military Retirement US$ 140 billion dollars, Civilian Retirement Fund US$ 490 billion dollars,
Unemployment Compensation US$ 81 billion dollars, Highway Fund US$ 35 billion dollars, Airports Fund US$ 15 billion dollars,
Railroad Retirement Fund US$ 21 billion dollars, all others US$ 58 billion dollars, for a total adjusted actual cumulative
United States debt of US$ 7.3 trillion dollars.

Eventually, the US government debt will catch up with reality, and the value of the US dollar will be adjusted
accordingly in relation to other major world currencies. This is why Brazil should adopt the euro instead of the US dollar currency.

Can we create a new currency for South America?

If the countries of South America including Brazil and Argentina decide to create a new currency for that block of
countries to compete with the euro and the US dollar in world financial markets, I have a suggestion for a name that would
be very appropriate for that new currency the "Bankrupt."

In January 1999, I sent a letter to the President of Brazil, Mr. Fernando Henrique Cardoso and also to the Minister
of Finance of Brazil giving them in detail the reasons why they should put in place a plan for Brazil to adopt immediately
the euro as its new currency. I also sent copy of that letter to the Brazilian ambassador in Washington, and faxed copies of
the letter to the major Brazilian newspapers and magazines in Brazil.

People tell me that Greece has not qualified to become a member of the euro and how can I expect that Brazil
would qualify? An article published in "The Economist" in the issue dated October 16th , 1999 "The euro’s in-and-out club"
(pg. 51) claims that Greece is on its way to meeting the criteria for euro membership, and aims now to join in January 2001.

A lesson in leadership and statesmanship from our Brazilian history.

At this point, it will be relevant to this article to quote from my book which is in the process of being published
José Bonifácio de Andrada e Silva "The Greatest Man in Brazilian History", Copyright © December 31, 1998, and
published December 1999, by Ricardo C. Amaral.

In 1822, José Bonifácio de Andrada e Silva made many courageous decisions regarding our country Brazil,
which assured us not only our independence from Portugal, but also kept our country from splitting into several
parts. José Bonifácio’s decisions projected a firm, decisive and powerful image of his administration also in his
foreign policy. In his diplomatic letter to the American Consul in Rio de Janeiro P. Sartoris in which he appointed a
diplomat to represent Brazil in the United States, José Bonifácio wrote " Dear Sir: Brazil is a nation and will take its place
as such, without expecting or requesting its recognition by the other world powers. We will send them
representatives of our nation. Those nations who receive and deal with them in that capacity will continue to be allowed to use
our ports and their commerce will receive favorable status. The nations that refuse our diplomats will be excluded
from our ports and commerce. This is our frank and firm politics." He also sent a similar letter to Chamberlain, the
English representative in Brazil."

Today, this is the kind of political leadership we need in Brazil, to guide Brazil for membership in Euroland and
create a more stable economic environment for our country, and start the new millennium on the right path for growth
and prosperity.

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.

Why the euro will 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 from political control
from its members.

This way of operating keeps the politicians out of the decision 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.

On a final note, on Wednesday, October 13, 1999 the economist Robert A. Mundell of Columbia University in
New York, won the Nobel Prize for Economic Sciences. Mr. Mundell’s innovative analysis of exchange rates in the
1960’s helped lay the groundwork which eventually inspired the creation of the euro.

Book by: Ricardo C. Amaral

José Bonifácio de Andrada e Silva

"The Greatest Man in Brazilian History"

http://alpha.fdu.edu/~amaral

If you want to read other articles by Ricardo C. Amaral, you can find them on the following website: https://www.brazzil.com/amaral.htm

Part ll of this series- originally published by

"The Brasilians," issue number 298, pg. 8E, November 1999.

By: Ricardo C. Amaral

Author and Economist

amaral@alumni.fdu.edu

Part III – November 2000

How can currency stability be achieved for the Brazilian economy?

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 currencyno 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.

If you want to read other articles by Ricardo C. Amaral, you can find them on the following website: https://www.brazzil.com/amaral.htm

Part lll of this series- originally published by

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

By: Ricardo C. Amaral

Author and Economist

amaral@alumni.fdu.edu

Part lV – 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 decapitalizedevery 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 Net Worth

(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 currencythe 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 Brazilalso 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.

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?

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.

If you want to read other articles by Ricardo C. Amaral, you can find them on the following website: https://www.brazzil.com/amaral.htm

Part lV of this series- originally published by

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

By: Ricardo C. Amaral

Author and Economist

amaral@alumni.fdu.edu

About the Author

Ricardo C. Amaral was born in the city of São Paulo, Brazil.

He attended Fairleigh Dickinson University in Teaneck, New Jersey, USA, where he received a B.A. degree in
Economics and later an MBA degree in Finance. He continued his Academic studies towards a PhD. degree in Economics at
Fordham University, but then elected to immerse himself totally into a professional corporate career.

Mr. Amaral has an extensive investment and international business background. He worked over the years in
the investment field and in the international area of a number of American and Brazilian multinational companies;
including Lexington Management Corporation / Templeton, Dobrow & Vance, GAF Corporation, Prudential Reinsurance
Company, American Cyanamid Corporation, Globo Television Network (largest television network in Brazil), Mesbla Trading
Inc., and Amaral International, Inc.

Mr. Amaral is among a very few remaining living descendants of both José Bonifácio de Andrada e Silva (The Patriarch
of Brazilian Independence) and his brother Martim Francisco Ribeiro de Andrada – the founding fathers of Brazil.