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Davidlynch2000: There might be some sort of language barrier here, but statements like
"When that happens the dollar will sink like Bush has in the polls."
⦠The information you mention in your articles is not proprietary and is commonly considered by currency traders.
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SouthAmerica: You quoted the above from somebody elseâs posting. Then you wrote a bunch of stuff regarding it.
Then you mentioned my articles.
What my articles have to do with what you wrote?
You also said: âThe information you mention in your articles is not proprietary and is commonly considered by currency traders.â
By the way, I donât know of anyone else here in the US, in Brazil or anywhere around the world - who wrote any articles besides me about Brazil adopting the Euro as its currency.
Here is an example quoting from an article published on June 1, 2002.
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
Author / Economist
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