Rogers: Sell U.S. dollar, buy real and yuan

Tue Dec 12, 2006 11:57 AM ET

By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) - It's only a matter of time before the beleaguered U.S. dollar loses its status as the world's reserve currency and medium of exchange, U.S. fund manager and author Jim Rogers told Reuters in an interview.

"The dollar is a terribly flawed currency," said Rogers, who co-founded the Quantum hedge fund with billionaire investor George Soros in the 1970s.

He urged investors to switch to the Brazilian real and Chinese yuan instead.

"You should hold as few dollars as possible. The dollar's decline would go on for years to come," he added.

The dollar has so far lost nearly 12 percent against the euro this year, around 14 percent against sterling , and roughly 9 percent versus the Swiss franc , as investors became concerned that U.S. economic growth was slowing and that the interest rate differential with Europe may narrow.

Investors expect the Federal Reserve may cut the fed funds rate, currently at 5.25 percent, next year, eroding the greenback's yield advantage over other major currencies.

The market's renewed focus on the widening U.S. current account deficit, a measure of the country's trade and investment flows, has also contributed to the dollar's <.DXY> recent decline, analysts say.

Rogers further outlined a gloomy scenario for the once-mighty dollar.

"As recent as 1987, the United States was a creditor nation. We are now the largest debtor nation the world has ever seen," said Rogers.

"We owe the rest of the world over $13 trillion. And that's a terrifying thought. Our foreign debt is increasing at the rate of $1 trillion every 15 months," he added.

MORE WORTHY INVESTMENTS IN BRAZIL, CHINA, COMMODITIES

Rogers suggested holding currencies such as the Brazilian real , which has appreciated by about 3.1 percent against the dollar since late November.

"The Brazilian currency will probably do better than most currencies for a few years because it has so many commodities. It is a resource-based economy and Brazil is doing a better job these days," he added.

Most analysts also expect the Brazilian currency to remain strong, specifically in the first half of 2007 due to its sizable fiscal and current account surpluses. Merrill Lynch, for instance, believes conditions are set for Brazil's gross domestic product to accelerate in the fourth quarter and into 2007.

In a wide-ranging interview, Rogers, a long-time commodity bull who traveled around 116 countries in 2000-2002 in a yellow Mercedes coupe, suggested getting out of dollars and going into undervalued agricultural commodities.

"I suggest looking into coffee and soybeans. That's where you'll find the most value," said Rogers. He estimated that prices of agricultural commodities are more than 95 percent below their all-time highs when adjusted to inflation.

"We have a looming food shortage. The world is consuming more food and that it is producing. The inventories are the lowest since 1972 and the number of hectarage devoted to agricultural products has been declining," he noted.

Rogers also talked about one of his favorite topics -- China. He said the 19th century belonged to the British, the 20th century to America, and the 21st century will be owned by China.

He traveled through China by motorcycle and car in the 1990s researching investment ideas and collecting material for his books.

He said he is currently invested in the renminbi and Chinese stocks and is planning to move to Asia in the near future to take advantage of the region's growth story.

Rogers said the Chinese yuan could potentially replace the dollar as the world's reserve currency in about 15-20 years provided the currency becomes freely convertible.

"The renminbi would go higher over the years. they have a huge balance of payments surplus and it's the largest creditor nation in the world."