Commodity analyst Dennis Gartman sees the Canadian dollar staying above parity
Analyst Dennis Gartman, editor of The Gartman Letter, says China's renminbi could eventually become one of the world's major currencies.(CBC)
As the euro's 10th birthday approaches some people are forecasting that the days of the U.S. dollar reigning as the world's major currency could be numbered.
Not so fast, says veteran commodity and currency analyst Dennis Gartman. He's the editor of The Gartman Letter, a widely-followed financial newsletter.
Fred Langan, host of CBC News Business, asked Gartman for his views on the American dollar during an interview that also touched on the euro, China's currency, gold, and the loonie.
FRED LANGAN: Is the U.S. dollar going to lose its status as the world's top currency?
DENNIS GARTMAN: I think that the U.S. dollar may lose its status as the absolute, dominant, only reserve currency. But is the United States dollar going to lose its position as the number one currency, as the chief reserve currency? Not in my lifetime. Not in my daughter's lifetime. No.
FL: Why is that?
DG: Well, you have to remember that the most important facet of being the reserve currency is, first of all, to be the dominant military power in the world. That's really what has marked the chief reserve currency. Prior to World War I and even up to the middle between World War I and II, the British pound sterling was the world's reserve currency because England was the dominant naval power. It was the dominant world power. It was the military force in the world and if you're going to keep your currencies — if you're a foreign nation, a foreign business and you're going to keep your currency with a reservable or any reservable asset — military power is the most important facet. So, that changed after the world wars when the United States became dominant. It is the dominant military force in the world. And unless that changes — and that's not going to change any time in my lifetime — unless that changes, we're still going to be number one.
FL: Well how much of the euro's strength comes from the fact that more countries are using it, for example?
DG: Oh, a lot of that. And clearly that's what's driving it. If it weren't for the fact that the [European Central Bank] is as austere … as "Bundesbankeresque" as it has been, the euro probably wouldn't be talked about as a reservable currency.
'In Canada, you're in the driver's seat. You guys are a powerful country that has the stuff the world needs.'—Dennis GartmanFL: By that, you mean the Germans are running the European Central Bank and keeping it conservative?
DG: Not a question. Even though Mr. Trichet [Jean-Claude Trichet, president of the European Central Bank] is at the peak, it is really run by the Germans. They are the dominant force. That's where the power resides. And they act in a German fashion.
FL: Why is the U.S. dollar so weak against the euro?
DG: A number of reasons. One, I guess there is a movement on the part of Middle Eastern countries in some instances, even the Chinese in some instances, to move some of their reserves away from the dollar and to this new currency — the euro — which has shown itself over the course of the last 10 years to be a liquid, large and reservable. But I'm not sure that that's going to be a dominant force for much longer into the future.
FL: Where will the euro be trading a year from now or 10 years from now?
DG: We're either side of 1.50 euros to the dollar, I think is probably a reasonable place for the dollar and the euro to trade over some protracted period of time.
FL: Are there any currencies that could eclipse the euro and the dollar?
DG: Eventually, I think that the Chinese renminbi will be a dominant world currency. One of a triumvirate. Actually, a "quadumvirate," if that is a term. The dollar will be supreme, the renminbi will be second, the euro will be third, and gold will be the fourth reservable currency. But if there is one that will trump the euro, it's probably going to be the Chinese renminbi.
FL: Where does gold fit into all of this? You mentioned it as the fourth currency.
DG: It's a weak fourth sister. Some countries will simply not wish to hold dollars. They might not wish to hold euros. So where do you go at this point? Well, you probably hold some gold. The World Bank looks upon it as a reservable asset. Most other people look upon gold as a modest reservable asset. It does hold its value over a period of time. So it becomes that sort of a repository of faith.
FL: You're long the Canadian dollar at the moment against the U.S. dollar. How long do you think that the Canadian dollar is going to trade above parity and why is it trading there?
DG: I think the Canadian dollar's going to trade above parity for many, many years into the future. What's interesting is people have to understand, in Canada, you're in the driver's seat. You guys are a powerful country that has the stuff the world needs. You've got wheat, you've got oil, you've got natural gas, you've got harbours, you've got good laws, you've got productivity. The world is coming to Canada and the Canadian dollar is the great beneficiary of that. And unless you move back to the left, unless you go back to a socialized economy again, or raise taxes or do something untoward (which I really don't think is going to happen), the Canadian dollar is likely to continue to get stronger and stronger relative to the U.S. dollar.
FL: We've got to run. Thanks very much for talking to us today.
DG: My pleasure. Thank you for asking.
This interview was broadcast on CBC News Business on May 28, 2008.
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