Forget Bernanke: Here’s the Next Big Threat Against the U.S. Dollar

Video Transcript

Hi, this is Rudy Martin for Uncommon Wisdom Daily.

You may not be hearing much about the currency war, but I’m here to tell you that it’s still going on, especially in the emerging markets.

The Brazilian finance minister first raised the subject of a currency war two years ago, when the U.S. Federal Reserve instituted its first round of quantitative easing. The program flooded the markets with newly printed dollars, boosting asset prices.

Many other countries were concerned that the move would also devalue the dollar, helping the U.S. inflate its way out of debt and giving its exporters an advantage in the international markets.

That hasn’t happened yet, but emerging-market nations such as China, India and Brazil are still fighting the currency war — trying to reduce the importance of the dollar in international trade.

The first tactic they’re using in this war is the currency swap.

At a summit of the BRIC nations — Brazil, Russia, India and China — earlier this year, they agreed to trade in Chinese yuan, rather than U.S. dollars. Since then, Brazil and Argentina have begun selling their oil for yuan. And last month, HSBC India implemented the first yuan-denominated cross-border trade transaction.

In addition to these currency swaps, emerging markets are also creating their own institutions.

China and Russia recently committed $1 billion each to a new joint investment fund. And BRICS countries, including South Africa, are now in discussions about establishing a joint development bank to fund new infrastructure projects.

Finally, emerging markets are making aggressive moves into the United States itself.

Three state-owned Chinese banks recently purchased U.S. financial institutions — the first time that’s ever been allowed. Now, investors will be able to open yuan-denominated accounts at some U.S. bank branches.

Clearly, the emerging markets are still fighting the currency war. And I believe they’ll launch their next big offensive at the BRICS summit in South Africa this coming March.

That’s when the joint development bank is likely to come online, giving borrowers a new alternative to the World Bank and other international-finance institutions.

For investors like me and you, it’s just another reason why the emerging markets will offer the best opportunities for profit over the coming decades.

I’m Rudy Martin for Uncommon Wisdom Daily. Thanks for watching.

Rudy Martin, editor of Global Trend Trader, is the President at Acamar Global Investments, with 25 years of experience serving institutions and high net-worth individuals.

Rudy started his investment career in 1983, co-managing a $2 billion private investment portfolio for Transamerica. Later, he went on to Wall Street as an equity analyst for Dean Witter and traveled globally, serving major institutional equity investors. In 1995, he joined Fidelity Investments as a Senior Investment Analyst for a series of multibillion-dollar fund portfolios.

During his career, Rudy has received awards for institutional investing and is widely quoted in the financial press and on television about topics related to global investing and emerging markets. For more information on Global Trend Trader click here.