“Here Is Why Brazil Should Adopt the New Asian Currency”
Written by Ricardo C. Amaral
Brazzil Magazine
Published: March 2, 2007
Here we are at a very exciting time - a turning point in world history - and the global economy is changing as never seen before, at the speed of light; and innovation and major advances in technology are helping in rearranging the entire global economy.
The global economy is slowly splitting the countries around the world into four major powerful blocks of countries - Europe, United States, Middle East, and Asia - and each country around the world will have to evaluate its economic self-interests regarding its economic future and will have to decide in the near future which group is the best for your particular country to establish very close economic ties with.
This article shows why when we take into consideration the direction that the Brazilian economy should take today, in relation to its economic prospects for the future, it becomes crystal clear that the best group for Brazil to integrate its economy with is the Asian group under the leadership of China.
In the coming decades Asia is where a major part of global economic power and activity is going to shift to - and Asian countries is the market where Brazil will be able to sell a large portion of its commodities, goods and services.
For the Brazilian economy to develop into a major economic power in the coming decades, Brazil has to put in place immediately a strategy that involves two important steps:
1) Since Brazil can't replicate the success that the Overseas Chinese have had in many countries around the world, first because there are just a few million Brazilians living outside of Brazil and second, because immigration from Brazil to other countries is a recent development - therefore there is no way for Brazil to replicate that particular Overseas Chinese formula for success.
What Brazil's businesses should do instead including most Brazilian companies - public and private - they should make every effort to slowly integrate its businesses into the Overseas Chinese network of networks; by using the Chinese colony living in Brazil as the vehicle to help achieve that business integration. The more Brazilian companies able to integrate its businesses with the Overseas Chinese network of networks the better it will be for the future of the Brazilian economy.
2) In the near future, Brazil should also adopt the "New Asian Currency," a new currency similar to the euro in its effort to adapt to the new global economic reality.
The Impact of the Overseas Chinese
I read a lot of newspapers, business magazines, books, and I watch many business programs on television all the time - and the impression that I have is that most writers and business analysts don't have a good grasp and understanding of how China has been able to develop its economy at such a fast pace in the last 20 years.
Here is what most of these people are missing in their analysis of China. I was fortunate when I had the chance to read in 1994 the latest book written by John Naisbitt author of "Megatrends Asia." - that book gave me a better understanding of China and its people, and also the influence and important role that the Overseas Chinese have been playing in China's spectacular economic development.
That book really opened my eyes, and also helped me have a better understanding regarding the latest wave of economic development of China - and quoting from that book Mr. Naisbitt said the following:
"The economic resurgence of Asia, driven by an aggressive global network of Chinese entrepreneurs and off-shore money, is moving in the direction of eclipsing the West. Unless the United States and Europe start to participate in the new Asia game, they will end up playing second fiddle to the new global leaders in Asia as early as the beginning of the next decade...The modernization of Asia - economically, politically and culturally - is by far the most important event taking place in the world today.
...But China's potential, as it usurps Japan's economic leadership, is not simply a matter of size. The true force that we must promptly come to reckon with is more dynamic, a secretive sophisticated network - invisible to most - that will make China and the Chinese the world's dominant economy. It is decentralized, Pan-Asian, increasingly global and family and education-oriented, and most of all, fabulously rich. It is the phenomenon of the Overseas Chinese. There are 57 million of them, 53 million in Asia alone. They have been around for centuries, but only now is the world becoming aware of their awesome presence.
The Overseas Chinese: The New Great Economic Power.
The dynamics of Asia's extraordinary growth cannot be understood without a thorough examination of the Overseas Chinese, the greatest entrepreneurs in the world. According to an assortment of estimates, Chinese around the world hold between $ 2 trillion and $ 3 trillion in assets, and many believe the real figure is higher.
...Fujitsu Research in Tokyo looked at the listed companies in just six key Asian countries. As its findings below illustrate, the overwhelming majority were owned by Overseas Chinese as follows: Thailand 81 percent, Singapore 81 percent, Indonesia 73 percent, Malaysia 61 percent, and the Philippines 50 percent.
This astonishing revelation about the tremendous economic power of the Chinese is confined only to the publicly listed companies. What about the less glamorous small and medium-size enterprises that together make up 96 percent of all companies in the Asia-Pacific Economic Cooperation (APEC) realm? According to Bustanil Ariffin, the former Indonesian minister who co-chaired the Pacific Business Forum, it is believed that small and midsize companies employ half of the workforce in most Asian countries. Chinese own 90 percent of these companies.
The economy of the borderless Overseas Chinese is the third largest in the world. If we counted the economic activity of all the Overseas Chinese as country all by itself, it would be outranked only by the United States and Japan. Overseas Chinese dominate trade and investment in every East Asian country except Korea and Japan.
Ethnic Chinese - not the Japanese - are the largest cross-border investors in Thailand, Malaysia, Indonesia, the Philippines and Vietnam. The Overseas Chinese account for 80 percent of all foreign investment in China, the motherland.
In the thriving new countries of Asia, Overseas Chinese control a huge chunk of the wealth - far more than their numbers might suggest. In Malaysia, they represent 30 percent of the population and control more than half of the economy. The numbers elsewhere are even more remarkable:
* Indonesia: 4 percent control 70 percent of the economy.
* Thailand: 3 percent control 60 percent of the economy.
* The Philippines: 3 percent control 70 percent of the economy.
Some historians go so far as to say that the economies of Southeast Asia were in a sense leased to the Overseas Chinese, while the natives concentrate on government.
The Overseas Chinese are not a nation-state, and the vocabulary and concepts used to think about nation-states will not help us understand the phenomenon. As science historian Thomas Kuhn has pointed out, we simply cannot understand a new paradigm by using the vocabulary of the old.
For example, centuries ago, when scientists discovered the earth was round, flat-earth vocabulary and formulations were of no use in understanding a round globe, the new model. Contemporaneously, the Cold War is over, and market economies prevail, but we still think in the same vocabulary and concepts.
Unless we adapt and create a new vocabulary and new concepts for new phenomena, we will never be able to comprehend them. Today's global economy is dominated by intercompany trade and person-to-person communications. Countries don't trade; people and businesses do. Networks are at the core of the new global economy.
The New Paradigm - A Network of Networks.
The Overseas Chinese are a network of networks. That is a new paradigm, a new formulation within the framework of the world's economy. All the key players among the Overseas Chinese know one another. Their businesses stay singularly apart, but they work together when necessary.
They are intensely competitive among themselves and exclude outsiders, especially those not of the same family, village or clan. When a crisis arises or a great opportunity presents itself, they will close ranks and cooperate. ...If you are being considered for a new partnership, a personal reference from a respected member of the Chinese business community is worth more than any amount of money you could throw on the table.
...The family business of the Overseas Chinese are networks of companies and other enterprises. And they are, in turn, woven together to constitute a huge global Chinese network of networks. Internet is the model for understanding. Just as the Internet is a network of about 25,000 networks, the Overseas Chinese networks number in the tens of thousands.
The number of networks and individuals on the Internet is not limited because the Internet is totally decentralized. ...It is decentralized right down to the individual; only the individual can access the Internet. Because of this complete decentralization, the Internet can have as many members as want to join. Similarly, the Overseas Chinese network can get as big as it needs to be to transform Asia's economy.
The other general characteristic of both the Internet and the Overseas Chinese network is that no one is in charge; the marketplace is. With the Internet, it is the marketplace of ideas and information, though, more recently, the commercial marketplace as well. With the Overseas Chinese network, market mechanisms are the deciding factor. Motherland or not, economic decisions involving China are driven purely by dictates of the market and guided strictly by rates of return.
Individual Overseas Chinese networks of companies are completely decentralized from the whole and they are extraordinarily efficient parts....The Chinese function efficiently as individuals....This mode of operation makes the Chinese, and their enterprises, immensely nimble in the competitive global economy. They react speedily to changing conditions, especially to political vagaries.
...Also, the individualistic Chinese want to have control of their own destiny. The Chinese proverb has it that "There is no prospect working for others." Everyone wants to be at the center and be his own boss. This inner entrepreneurial drive makes the Chinese very proactive, risk-taking and enterprising.
...Professor Wang Gungwu, vice chancellor of Hong Kong University and a noted authority on the Overseas Chinese, who himself is a Chinese born in Indonesia, says, " I believe that these Chinese Attitudes towards wealth and culture are still with us.'
Wang points out that the Chinese have been trading overseas for more than a thousand years without the support of their government in china. "They depend instead on their own daring, their skills and, most of all, their entrepreneurship." With no political power themselves, they would link up with those in power in order to achieve their commercial goals.
"To achieve wealth while other people held the power was to accept that wealth could not be followed by power in the hands of the merchants themselves," Wang explains. They knew from Chinese history that wealth was safer when the wealthy showed no desire or ambition for political power."
China, the Rising Superpower
In 2006, journalist James Kynge a former China bureau chief of the Financial Times published a very insightful book "China Shakes the World" and Mr. Kynge said the following on his book:
"...In 1949, the year of the revolution, the number of Chinese cities with a population of more than a million was only five, and those with between 500,000 and 1 million inhabitants numbered just eight. In 2000, the last year for which figures are available, those numbers had risen to forty and fifty-three, respectively.
...China's urbanization is still in its infancy. There are now roughly 400 million people living in towns and cities, but in 2050 that number is expected to have risen between 600 and 700 million, to reach a total of 1 billion or 1.1 billion. Even at that level, China may be only slightly more than 70 percent urbanized, compared with prevailing rates of around 90 percent for the United Kingdom and the United States, just over 80 percent for France and Germany, and 77 percent for Japan.
The investment required to settle so many people in an urban environment is impossible to calculate with any accuracy, but it is clear that worldwide demand for steel, aluminum, copper, nickel, iron ore, oil, gas, coal, and many other basic metals and resources may remain strong for as long as cities in China expand at a rapid clip.
...The number of people living on the mainland shot up from an estimated 582.6 million at the time of the 1953 census to an official estimate of 1.3 billion now. (The real number is almost certain higher, but nobody knows by how much.)
...Though only a fraction of the population could currently be called consumers, the promise of a vast domestic market grows more real as the middle class expands - estimated at between 100 million and 150 million people in 2004."
Bestseller author John Naisbitt (currently a faculty member at the Nanjing University in China) published his latest book "Mind Set!" at the end of 2006. And quoting from his book he said:
"...Almost all the talk about China centers on its manufacturing advances, while the changes in the urban landscape of China are underestimated and hard to believe unless you are there to witness its great cities' renaissance. Old urban centers are being torn down and millions of people are relocating in great construction projects that are shaping the China of the twenty-first century.
China has 166 cities with populations of more than 1 million. There are many cities in China that one has never heard of that have populations of 6, 7 or 8 million people. The country's rapid urbanization has lifted hundreds of millions of rural Chinese out of poverty.
...One important measure of the extent to which capitalism is progressing in China is the increase in the number of wealthy individuals. There are now 7 billionaires in China and more than 100 additional individuals with fortunes averaging half a billion U.S. dollars. Merrill Lynch recently estimated that the country now has 300,000 millionaires - a number that others have judged to be from "conservative" to "very conservative.""
Fast Company magazine, March 2007 issue, published an article by global trends consultant and futurist Andrew Zolli. He said on his article: "...For the first time in history more human beings now live in cities than not.
...Virtually all urban growth in the next half-century is going to occur in the developing world, where urban infrastructure is often weak, antiquated, or insufficient - if it exists at all. China is planning to build 20 new major cities each year for the next 14 years, and the ones it already has are growing by 13 million to 15 million people annually. Up to 300 million farmers will move from the countryside in just the next 20 years."
In the next 20 years China will be building so many new cities that it makes economic sense to integrate the Brazilian economy as much as possible with the economic development and activity that is happening inside China.
Brazil's natural resources - which contains nearly every mineral in huge quantities - and includes important resources such as quartz, diamonds, manganese, uranium, platinum, chromium, iron ore, phosphates, petroleum, mica, graphite, titanium, copper, gold, petroleum, bauxite, nickel, zinc, tin, mercury, hydropower, timber, and agricultural products - the Brazilian economy with this massive wealth of natural resources would be a perfect partner for China in the coming decades.
As I mentioned in the beginning of this article, most writers and all kinds of business analysts that I know have the tendency of analyzing China and the Chinese economy with its 1.3 billion people based on the old mindset of a closed system of a nation-state.
But when the reality is: under the new state-of-the-art paradigm - which works great for the new age of the Internet and globalization - today's China spectacular economic growth and performance also has another inseparable part to its system; the Overseas Chinese network of networks and China's fantastic economic success can be understood only under that context.
And today the Overseas Chinese network of networks must have at least 65 million members outside of China. In 1994 it was estimated that the Overseas Chinese held between US$ 2 trillion and US$ 3 trillion in assets, but in 2007 that figure should be at least US$ 7 trillion in assets when we take into consideration all the extra success achieved by the Overseas Chinese since that time.
It's no wonder that most Americans don't have a clue about what is really happening in China and they don't have the understanding of the tremendous economic impact that the Overseas Chinese are having not only inside China's economy, but also in the increasingly economic influence the Overseas Chinese are having around the world including in South America and in Africa.
It is not only the impact of the Overseas Chinese that is helping China to leapfrog its economy into the future - they are also being helped for many years by companies such as Wal-Mart that in their effort to reduce costs for the products that they sell - they have been training the Chinese companies in China with the latest in state-of-the-art management techniques - and the most efficient methods and cut throat type of capitalist techniques. In turn, this new generation of Chinese companies is participating in the global economy with great success.
Brazil Should Adopt the "New Asian Currency".
Since December of 1998 I have been advocating and writing many articles saying that Brazil should adopt the euro as its new currency. But the world has been changing at the speed of light since then and everything is evolving very fast today.
In the last two years I have changed my mind regarding Brazil adopting the euro as its new currency, because the entire ball game has changed from the Brazilian perspective in the last few years, and in my opinion, in the near future, Brazil should adopt instead the "New Asian Currency," a new currency similar to the euro on its effort to adapt to the new global economic reality.
But for Brazil to adopt the "New Asian Currency" it will take time and advance planning to achieve that goal - and it will not be too soon for the Brazilian government to start moving in that direction and coordinate with the Asian countries and start planning for that change.
There are many advantages for Brazil to adopt the "New Asian Currency" and the benefits will be the same as the benefits that I mentioned in many articles about Brazil adopting the euro.
The short-term sacrifices that will be required from the Brazilian people to meet the "New Asian Currency" membership requirements will be rewarded in a big way in the future in the form of monetary stability, lower interest rates in Brazil, a sound economic environment for investments, and finally access to Asian financial markets not only for the Brazilian government, but also for Brazilian companies.
The New Asian Currency
On May 5, 2006 The New York Times published an article "Asian Finance Ministers Seek Common Currency" - and the article said:
"Hyderabad, India - Finance ministers from China, Japan and South Korea announced tentative steps on Thursday to coordinate their currencies in ways that could ultimately produce a common regional currency like the euro.
The ministers, speaking on the sidelines of the annual meeting of the Asian Development Bank here, said that they would work toward closer coordination of their foreign-exchange policies.
They also pledged to enhance an existing framework to defend regional currencies against speculators and work toward the development of Asian bond markets.
Although an Asian monetary union is a distant goal, the Asian Development Bank has been pushing the idea of an Asian currency unit, or A.C.U., over the past year. The unit's value would be set by an index of participating currencies.
The idea has gained popularity among several Asian finance ministers as a step toward harmonizing regional monetary policies.
The development bank's Japanese president, Haruhiko Kuroda, a supporter of an Asian monetary union, had pledged to propose the creation of an A.C.U. at the meeting in Hyderabad, but reportedly held back in light of opposition from Washington.
... The Asian currency unit initiative is now backed by the so-called Asean Plus 3 grouping, which comprises the Association of Southeast Asian Nations, China, Japan and South Korea. The Hyderabad statement was issued after a meeting of Asean Plus 3 finance ministers.
Though billed as a small step, the idea of an Asian currency unit mirrors early moves made toward the euro. First, European countries devised a valueless measurement unit reflecting relative currency fluctuations. They then began aligning exchange rates and altering monetary policy to keep those rates in line, a process that took decades. The euro finally emerged as a currency in January 2002."
The Single Gulf Currency
The creation of another major currency it is also under way for the countries of the Middle East. And the IMF (International Monetary Fund) has mapped out the steps that will be taken during the unification period to establish the Single Gulf Currency within the first decade of the new millennium.
The new single currency for the Middle East will initially be limited to members of the Gulf Cooperation Council, which includes some of the wealthiest nations on earth. The GCC Gulf comprises of Saudi Arabia, Bahrain, Kuwait, Oman, Qatar, and United Arab Emirates.
Financial officials of the Gulf Cooperation Council (GCC) member states have approved the issuance of a single currency by 2010. It was no coincidence that at the 22nd summit in Muscat agreement was reached on setting up the AGCC Customs Union, which came into effect on 1st January 2003. Steps were also taken to set up a Gulf common market in 2007 and introduce a "Single Gulf Currency" by 2010.
Conclusion
The global economy is in the process of being rearranged and these changes are the result of globalization combined with the development of state-of-the-art new technologies such as a world that is connected by fiber optics, the constant increases in computer power, a growing global Internet system that is connecting everybody, and the astronomical developments in global communications that has been making it easier to communicate and send information via satellites, Internet, email or telephony.
Globalization, technology, and the amount of money that is moving around the world at the speed of light are forcing countries around the world to form these currency unions.
In July 1999, I said the following in one of my articles and made the following prediction:
"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 = 35 percent of market
New Asian Group = 25 percent of market
Other = 5 percent of market"
I guess taking into consideration what is happening in the Middle East, we will also need to add to the above list the "Single Gulf Currency" as the 4th major currency by 2010.
I want to remind the readers that in 2000 the U.S. Dollar had a 60 percent share of the global market for foreign exchange reserves held by central bankers of countries from around the world. As the readers can see, the result of this international foreign exchange market shift will have a major impact in the value of the US dollar, since most of the gains to be achieved by these other major currencies will be achieved at the expense of the US dollar.
In the coming years more and more countries will be forced to choose sides and become a member of a particular currency group; for these countries to be able to survive and prosper economically in the future under this new global monetary system. And in the case of the Brazilian economy when we take a good look at the road ahead, let's say to the next 50 years, I have no doubt that Brazil should adopt the "New Asian Currency" as its new currency.
The United Nations World Population Prospects (2004 Revision) is projecting that world population will reach 7.9 billion people by 2025 - including Brazil with 228 million people and China with 1.4 billion people. But when we add the Overseas Chinese to China's population by 2025 then we have over 1.5 billion Chinese people as a market for Brazilian commodities, goods, and services.
In the last 10 years (1996 - 2006) exports of Brazilian commodities, goods, and services to the United States has been completely stagnant, and the prospects for improving that business in coming years are not any better.
On the other hand, exports of Brazilian commodities, goods, and services to China has been booming with great prospects for increasing business opportunities in the future - It is very clear that in the coming decades the future of the Brazilian economy will benefit very little from its association with Uncle Sam, but the Brazilian economy will benefit greatly from its increasing business association with the Land of the Dragon.
Ricardo C. Amaral is a writer and economist. He can be reached at brazilamaral@yahoo.com
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