Soros warns 'systemic failure' may be upon us

"This is not a normal crisis". George Soros, the doyen of international finance, the man who made billions from sterling's expulsion from the Exchange Rate Mechanism in 1992, and who now spends much of his time on philanthropic activities, is listened to in Davos respectfully. Yesterday he had something important to say about the state of the world's financial system: "central banks have lost control"; a "global sheriff" to patrol international markets should help them out.

Mr Soros offered the proceedings a deep historical perspective. To his mind, he told participants at the World Economic Forum, we are "at the end of an era". The 60-year economic supremacy of the US and the dollar's status as the international reserve currency of choice is drawing to a close, fundamentally weakened by the shift in economic power eastwards with the rise of China. A more recent era is also over: that of "superleverage". Regulators, the financier said, have not yet fully appreciated the portent of these developments. "Systemic failure" may be upon us.

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Mr Soros said he supported fiscal and monetary action to boost the US economy, but was concerned about the limits to monetary easing. Referring to the 25 per cent deprecation of the dollar in the last couple of years, he added: "I question how far the Fed can go, given the reluctance of people to hold dollars".

Eventually, he said, there will have to be more regulation of financial institutions, including of the hedge funds he once pioneered, possibly limiting financial products and encouraging more disclosure of where risks lie. What is needed is "assurance that the main market makers will not be allowed to fail," he said. "We need a new sheriff, not Washington consensus."