Down With The Dollar, Up With Oil

A week or so ago, Chinese premier Wen Jiabao was "a little bit worried" about the stability of the U.S. dollar. Now, it appears he's really sweating it, because the Chinese just came out in favor of ditching the dollar and replacing it with a new global reserve currency system. As Nobel Laureate and Columbia professor Joe Stiglitz, who just returned from meeting with financial leaders in China, told me today, "the Chinese are worried that they've worked so hard to save this $2 trillion in reserve currency, and they are going to see it blown away by inflation" as the U.S. continues to print money to bail itself out of the financial crisis.

So, what's the solution? Tomorrow at the United Nations, Stiglitz and some Chinese and Russians officials will propose a new reserve system which would allow hard-hit countries to pull from a new "special drawing rights" fund at the IMF, rather than pouring more money into potentially devalued dollars. It's a play on the "global greenbacks" idea that Stiglitz first put out there in his book, "Making Globalization Work." The idea is to keep poor and rich nations alike spending and buoying the global economy, rather than buying up T-bills that then sit underground collecting dust. As Stiglitz points out, this might also fix the problem of "poor countries basically lending money to the U.S. for free."

I also spoke today with the legendary investor Jim Rogers (who, along with George Soros, founded the Quantum Fund way back when). He's all for ditching the dollar as a reserve currency (in fact, Rogers predicts we'll see numerous currency crises in the next few years), but proposes a more radical investment solution. "If I were running the Chinese central bank, I'd buy commodities—oil, wheat, zinc. They are the only things with solid fundamentals these days. I mean, the fundamentals at Citigroup and GM certainly aren't getting any better." Rogers is one of many predicting a new run up in commodities as a result of the financial crisis, as people flock to real assets like gold, food, and oil as a hedge against print money inflation. The Chinese, of course, had been snapping up African and Mideast energy assets left and right even before the crisis. Just this week, the Chinese engineering firm HuaFu was rumored to be the new Asian "partner" in a big project to develop liquid natural gas in Iran. If there's one thing the financial crisis will bolster, it will likely be petro-politics.>

Down With The Dollar, Up With Oil | News