FT: Thank you for joining us, Mr Soros.GS: It’s a pleasure.FT: How do you judge the state of the world economy? Has the world recovered from the crisisof 2007/2008?GS: Well, certainly the financial markets have regained their composure so they’re beginning tofunction again, and also the world economy has overcome the shock that it has suffered becausefor a while everything froze and now things are moving again. So there is rebound, but I think that the facts of the crisis will take a long time for the world to absorb and the main source of theproblem is in the United States. This is where consumers have spent more than they earned for aperiod of 25 years; where we have accumulated current account deficit that reached 6.5 per centat its peak, which actually could have continued because there were other countries – particularlyChina and the Asian tigers – that were very happy to run a continuous surplus and to finance ourdeficit. So that could have actually continued, but the households became over-indebted and it’sthe consumer who accounts for over 70 per cent of the US economy that has to cut down, andthat will take a while.Then also you’ve got the banking system that basically was bankrupted. It’s at the bottom andhas to earn its way out of a hole and, again, it’s happening at a pretty fast clip because banksborrow at zero and buy 10-year government bonds, yielding 3.5 per cent, and that’s a pretty fastrate of earnings for no risk. So, they’ll earn their way out of a hole, but it will also take time. Andthen there’s still the whole area of commercial real estate, where the losses have not beenrecognised. So the source of weakness in the world will be mainly in the US consumer spendingand in, let’s say, the decline in the banking sector.FT: And is that weakness in the US sufficiently grave that there could be a W-shaped recovery,that there could be another dip downwards?GS: Well, I think certainly there could be another dip in the stock market because, right now weare enjoying the confidence multiplier and there’s a sort of a hope that this is a crisis like theprevious ones and we will just sort of recover in a V-shape recovery. So, when that hope is notfulfilled, I think that will be ...FT: Which you are certain it will not be fulfilled?GS: Well, I can’t see it being fulfilled. I may be wrong. I’ve been wrong before, but I just don’tsee where the growth in the US economy can come from.FT: Given this continued weakness in the US economy, are people right to start to be concernedabout the dollar?GS: Well, they are of course and the dollar is a very weak currency except for all the others. Sothere is a general lack of confidence in currencies and a move away from currencies into realassets. The Chinese are continuing to run a big trade surplus and they’re still accumulating assets

and basically the renminbi is permanently undervalued because it’s tied to the dollar. There is adiversification from assets that are normally held by central banks into other assets, especially inthe area of commodities. So there is a push in gold, there’s a strength in oil, and that is in a way aflight from currencies.FT: Is there going to be a tipping point, a moment at which the dollar is fatally weakened? Ordoes it just sort of carry on?GS: As long as the renminbi is tied to the dollar, I don’t see how the decline in the dollar can gotoo far. Now, of course, to some extent it’s very helpful because with the US consumers savingmore and spending less, exports can be way for the US economy to be balanced. So, an orderlydecline of the dollar is actually desirable.FT: Does it, at some point, need also to decline against the renminbi? Does there need to be somesort of a new global currency deal?GS: No. I believe that basically the system is broken and needs to be reconstituted. We cannotafford to have the kind of chronic and mounting imbalances in international finance. So, youneed a new currency system and actually the special drawing rights do give you the makings of asystem and I think it’s ill-considered on the part of the United States to resist the wider use of special drawing rights. They could be very, very useful now when you have a global shortfall of demand. You could actually internationally create currency through special drawing rights andwe’ve done it. We issued $250bn and that’s a very, very useful step, except the rich countriesdon’t actually need the additional reserves, so all they can do is put it in the shop window andsay, we have got that much extra. But they can’t actually use it. Now I think it could be used toprovide global public goods. The rich countries could put their allocations in escrow. Theproblem is that there is a cost to using SDRs. It’s a very small cost at the moment; it’s less than0.5 per cent, but still is a cost, so somebody has to pay it and I think we have actually the meansto do it because the IMF has very large gold reserves – kept in the books at a very low price –and it has been decided to use those gold reserves to the benefit of the least developed countries.So, the IMF could actually pick up the cost of paying for the special drawing rights ...FT: Using its gold reserves?GS: And, in fact, it’s being done. It hasn’t had any publicity, but I understand that in Istanbul adeal was signed where I think the UK and France actually transferred $2bn of their SDRs, or 2bnSDR worth to the least developed countries, and the IMF picks up the cost. So, it’s a road that’salready being used and it could be used on a larger scale.FT: What sort of a financial deal should Obama be seeking to strike when he travels to Chinanext month?GS: I think this would be time because you really need to bring China into the creation of a newworld order, a financial world order. They are kind of reluctant members of the IMF. They playalong, but they don’t make much of a contribution because it’s not their institution. Their share isnot commensurate ... their voting rights are not commensurate to their weight, so I think you

need a new world order that China has to be part of the process of creating it and they have tobuy in. They have to own it the same way as, let’s say, the United States owns the Washingtonconsensus, the current order, and I think this would be a more stable one where you would haveco-ordinated policies. I think the makings of it are already there because the G20, in agreeing topeer reviews, effectively is moving in that direction.FT: Do you think it’s possible to persuade China to allow the renminbi to become stronger?GS: I think that they would be ... they’ve been advocating for it, so I would take them at theirword and use this as a special drawing rights more often and make the renminbi, even though it’snot convertible, part of the SDR. In other words, it should be one of the currencies used in thespecial drawing right arrangement, and that will bring them in.FT: And that’s possible even with the renminbi not being convertible?GS: Yes. Yes. It has been considered before and I think the Brazilian real should also be part of it. I think that a number of currencies which constitute a basket can be and should be increased.FT: And what about the American concern that aiding and abetting this move away from thedollar as the world’s reserve currency ultimately means a weakening of the US economy?GS: No. I think that is ... I mean, we did have great benefits from it, but we have abused it and Idon’t think we can continue abusing it anyhow. So it is not necessarily in our interests to havethe dollar as the sole world currency because as the world economy grows, it needs an additionalcurrency and, if the dollar is that additional currency, it means that the US has to have chroniccurrent account deficit. And that is not appropriate. I think it’s in our interests as well to reformthe system.FT: At least in the short-term, though, isn’t it very convenient for America that the rest of theworld is underwriting American spending right now?GS: Yes, it is, but the willingness to do so is greatly diminished. I think that you will find thateffectively China will buy less and less of the US government bonds because it will have asmaller surplus for the United States because China will be diversifying. It will be lending toBrazil and South Africa and other countries in order to finance its exports to those countries. So Ithink this is a healthy, if painful, adjustment that the world has to go through.FT: If America doesn’t actively take part in this sort of renegotiation of global finance, what willhappen? What’s your nightmare scenario?GS: Well, the Chinese will go bilateral. They already do it. They already have a clearingarrangement with Argentina and I think they’re working on one with Brazil, and you will findthat there will be more and more bilateral arrangements. So the dollar will remain the maininternational currency, but its use will decline. So I think that a world of bilateral relations is lessdesirable than a continuation of a multilateral system. But the system we have now has actually