Buck up: Soros says dollar will remain world's go-to currency
Billionaire investor George Soros said the dollar will remain the world's reserve currency for a while. "I think the dollar is the dominant currency for a while to come. But in the long run I think it would be important that the U.S. should be subject to the same discipline as the rest of the world," Soros told CNBC.
Dollar is hanging in there
The dollar's overall firmness versus the world's other major currencies despite record U.S. fiscal and monetary stimulus continued Tuesday, with the buck strengthening about one cent versus the euro to $1.3262 and 1.5 cents versus the British pound to $1.4630.
Soros also called the G-20's funding of $250 billion in special drawing rights for countries in need "extremely important" because it will enable those countries who aren't able to print currency to move forward and stimulate their economies, CNBC reported.
Sees progress on crisis
Soro also told Bloomberg News Tuesday that as long as the world deals with the financial crisis in a multilateral and coordinated way, "I think we'll get through this." Soros' $21 billion Quantum Endowment Fund, a hedge fund, rose 8 percent in 2008, compared to an average hedge fund decline of about 20 percent.
Calling the G-20 summit's actions "ahead-of-the-curve," Soros also predicted that China's economy would accelerate before the end of the year, with Brazil and India following the world's most populous country as the first major economies to bounce back from the global recession, Blooomberg News reported. That recession is expected to contract the global economy by about 2 percent this year -- its worst performance since the end of World War II -- according to International Monetary Fund research, with international trade declining up to 9 percent.
Soros is perhaps best known for one of the most cunning and successful short-term plays in investment fund history. In September 1992, Soros sold short more than $10 billion of the British pound after the Bank of England failed to raise interest rates. Soros' profit on the ensuing fall in the pound: about $1.1 billion.
Currency Analysis: Soros' comments should be dispel any delusions that another currency or "a basket of currencies" will soon displace the dollar as the world's reserve currency. Adherents to such theories make the mistake of assuming that a reserve currency is driven solely by monetary policy and the strength of a nation's economy. Those factors play a large role, but political development, the rule of law, societal strength and transparency are just as important.
Further, while large budget deficits and an expansionary monetary policy will place downward pressure on the dollar in the quarters ahead, investors should keep in mind that once the recovery has established itself, both the Fed (via reversing its quantitative easing) and the Congress (via tax increases and spending cuts) can take those excess dollars out of circulation, pumping the buck back up.