The Chinese yuan is the only currency on the horizon which can challenge the US dollar to become the world’s reserve currency in the future, says financial commentator and international investor Jim Rogers.
The elite club of reserve currencies used by the International Monetary Fund has a new member, the Chinese yuan.
The list previously had four major world currencies the US dollar, the euro, the British pound and the Japanese Yen. The Chinese yuan, also known as 'renminbi', is the fifth most-used currency in international transactions.
Until 2005 it was tied to the US dollar meaning that when the dollar fluctuated up or down against other currencies, the value of the yuan would move with it.
RT: Why do you think the Yuan is joining the reserve currency basket and what does it mean for the global economy?
Jim Rogers: It is joining because the renminbi is now one of the most important currencies in the world. It is the fifth most commonly used. Remember, 15 years ago nobody knew there was a Chinese currency. It has skyrocketed and it is going to be even more important in the future.
RT: How will this affect the four major world currencies already in the IMF's reserve basket: dollars, euros, sterling and yen? Might this pose a challenge to the dollar’s international dominance?
JR: The fact that it is in the IMF basket now is really just a publicity thing, it is not very important. It is significant that it is there. But that’s about all. Trade flows are what will change that. The fact that the British pound is there doesn’t help it, or the Swiss franc or anything else. Just because you are in the IMF basket means very little. What does mean something is trade flows, and as I’ve said, the renminbi 15 years ago was nothing. Now it’s already one of the most dominant currencies in the world.
RT: China has been the world's largest exporter since 2009, overtaking the US. What does the yuan having reserve currency status mean to traders?
JR: Eventually, we will all be using the renminbi. The renminbi is the only thing I see on the horizon which can challenge the US dollar to become the world’s reserve currency. It is not there yet, but it is moving and moving fast. The US dollar is a very flawed currency; the renminbi has its problems, the main one right now is you cannot buy and sell it. It is a blocked currency. But eventually that will change and it will probably challenge the US dollar…. In Hong Kong, you can use the renminbi in any shop you want. It is happening in Macau, and in Singapore there are people who will take the currency.
“There’s nothing wrong with borrowing huge amounts of money – as a country, as a family, as an individual – as long as you’re putting it into productive assets, building for the future. In the nineteenth century, the United States borrowed stupendous amounts from all over the world, mainly from Europe. We were a gigantic debtor nation. We put the money into productive infrastructure such as railroads and factories. And by 1914 we got our payoff. We became a creditor nation for the first time in our history. We then became the world’s largest creditor nation and the most powerful country in the world. We borrowed all that money, but we invested it wisely. But if you borrow a lot of money and buy Rolexes and Porches and big houses… you are not going to thrive long term.”
Around five years after Rogers wrote that, the 2008-2009 global economic crisis delivered what should have been a crowbar-to-the-head message about debt: Too much debt is bad.
But since then, overall levels of debt haven’t declined. Total lending has actually risen – by 40 percent. The world economy owes itself US$57 trillion more than it did in 2007. Total debt – money owed by bank, households, companies and governments – has risen by US$112 trillion, or 129 percent, since 2000.Meanwhile, over the past 25 years, the global economy grew an average of 3.6 percent per year. But global GDP increased 3.4 percent in 2014. Then it slowed to 3.1 percent in 2015. It is expected to be around 3.2 percent this year. Despite all the “stimulus” and escalating debt, the best efforts of central bankers and negative interest rates around the world, global economic growth has – at best – stalled.
Has the money that the world has borrowed been invested in productive assets – or used, as Rogers said, to buy Rolexes and Porches and big houses? It looks like the latter.
International investor Jim Rogers warns that if Deutsche Bank would ever fail, it would crash the world’s financial system.
Deutsche Bank has said it would fight a $14 billion demand from the U.S. Department of Justice to settle claims it missold mortgage-backed securities, a shock bill that raises questions about the future of Germany's largest lender.
“The main reason is that the US government is deep in debt. They’ve got a gigantic deficit – they are desperate for money. They’ll try to get it anywhere they can. I can’t imagine that Deutsche Bank should be liable for $14 billion,” Rogers told RT.com.
The claim against Deutsche, which is likely to trigger several months of talks, far exceeds the bank's expectations that the DoJ would be looking for a figure of only up to 3 billion euros ($3.4 billion).
“Either Deutsche Bank goes bankrupt, which is going bring down the entire world financial system, or they are going to come up to some kind of compromise at a lower number. If Deutsche Bank does have to pay $14 billion – you should be very worried anyway, but especially if they have to pay $14 billion,” Rogers said.
The bank only scraped through European stress tests in July and has warned it may need deeper cost cuts to turn itself around after revenue fell sharply in the second quarter due to challenging markets and low interest rates.
Chief Executive Officer John Cryan, in charge since last year, is already firing thousands of workers, dumping unprofitable clients and exiting businesses, Bloomberg reported.
The prospect of bailing out Deutsche Bank is politically noxious for German Chancellor Angela Merkel, who’s deciding whether to seek a fourth term next year and has championed European Union rules aimed at keeping taxpayers off the hook in a crisis. Merkel’s spokesman has said the government sees “no grounds” for talk of state funding for the bank. Cryan, for his part, told the Bild newspaper that accepting government support is “out of the question for us.” That hasn’t quelled speculation. Lawmakers from Merkel’s governing coalition said they expect the government to step in if Deutsche Bank were at risk of collapse due to a capital shortfall.
So what if the bank should eventually fail?
“Then the EU would disintegrate, because Germany would no longer be able to support it, would not want to support it. A lot of other people would start bailing out; many banks in Europe have problems. And if Deutsche Bank has to fail – that is the end of it. In 1931, when one of the largest banks in Europe failed, it led to the Great Depression and eventually the WWII. Be worried!” Rogers warned.
Rogers isn't alone about being cautious when it comes to investing in the current turbulent global environment.
One of the most dangerous things an investor can do is to make money -- because of what he might do next.
And... it doesn't seem all the world's debt has been put to good use.
Those are two of the messages from legendary investor Jim Rogers. (I spoke with Jim personally earlier this year, and you can read the full interview here.)
In the early 1970s, Rogers co-founded the Quantum Fund, which went on to become one of the world's most successful hedge funds. He quit full-time investing in 1980 after making returns of 4,200% over 10 years.
He then traveled the world twice and wrote a few books about the lessons he learned. Even if you aren't interested in traveling or investing, Investment Biker andAdventure Capitalist are both entertaining and educational reads. They're must-reads for anyone interested in understanding global markets and how they work.
I recently re-read parts of Adventure Capitalist, which Rogers wrote in 2003 after a three-year, 152,000-mile drive around the world. I found a number of lessons that are all the more relevant today. Here are two of them:
On the Dangers of Making Money in the Market
"One of the mistakes that many people make in the stock market is buying something, watching it go up, and thinking they are smart. They find themselves thinking it is easy. They take a big profit and immediately go looking for something else. That's the time they should really do nothing. Self-confidence leading to hubris leading to arrogance -- that is when you really should put the money in the bank and go to the beach for a while until you calm down. Because there are not many great opportunities that are ever going to come along. But you do not need many if you do not make many mistakes."
As Rogers has said before, sometimes the best thing to do is nothing. And sometimes doing nothing means holding cash.
Cash might seem like a terrible investment -- it doesn't earn interest, it gets eaten up by inflation, central banks can just print more of it, and holding it can mean you miss out on the power of compounding.
That said, cash is the perfect hedge. Holding cash means you don't have to worry about market crashes. And it's there to use when, as Jim Rogers said, you find "money lying in the corner."
Jim Rogers breaks down his recipe for success in this latest interview. He discusses where he sees the economy going in the future and how much of a disaster things currently on. Opportunities can still be had! Even in these dangerous times.
