Berkshire Hathaway 2003 Annual Meeting Audience Question # 28

Berkshire doesn’t have a huge foreign currency exposure

Warren Buffett:

Number 5.

Audience Member:

My name is Joseph Lapray. I’m a shareholder from Minneapolis, Minnesota. Thank you for this opportunity to present a question.

At last year’s meeting, I believe that Mr. Munger made a comment to the effect that it was not inconceivable that the U.S. dollar could someday suffer a collapse in value, similar to that which had recently befallen the currency of Argentina.

I am concerned that in the event of a collapse in the value of the dollar relative to foreign currencies, that Berkshire Hathaway’s insurance operations may find themselves having to pay for replacing property whose cost is denominated in sharply-appreciated foreign currency.

I have two specific questions. First, does Berkshire Hathaway have any way to protect itself from the effects of inflation induced by a possible currency collapse?

And second, do you have any ideas about how individual investors can protect themselves from currency risk? Thank you.

Warren Buffett:

Yeah. I’ll ask Charlie first to comment on whether he said exactly what the gentleman said last year.

Charlie Munger:

Well, I don’t… I wasn’t predicting that the United States would go to hell as much as Argentina has.

What I was predicting is that all kinds of things could happen here that are unthinkable, based on past recent experience. And Berkshire, Warren, by and large, our liabilities are denominated in dollars.

Warren Buffett:

Right.

Charlie Munger:

We don’t have a huge foreign currency exposure at all.

Warren Buffett:

No, well, we have… you know, we may have… we have a few billion dollars, at least, denominated in liabilities in other currencies, but we also have assets in those currencies, pretty much.

So, we don’t think about it day by day in terms of matching euro assets against euro liabilities. But in a general way, we don’t get way out of whack, either.

I mean, we do not have lots of liabilities around the world in other currencies which are only matched by assets in U.S. dollars.

Most of our assets and liabilities, overwhelmingly, are going to be in U.S. dollars.

But we’ll have a… you know, we will have, maybe at the present time, a couple of billion that… of liabilities, primarily in euros, and we have at least that much in the way of assets.

So, we don’t run big… we do not run a big currency risk at Berkshire.

Now, if you talk about the value of the dollar declining dramatically, you know, we all face that risk if we have a lot of dollar assets.

I personally don’t worry about the American currency getting worth far less, relative to other currencies, as much as I worry… I don’t really worry about it.

But I think there’s a probability that sometime in the next 20 or 30 years that you could have rampant inflation in this country again. You’ll have probably have it around the world. And it’s probably more likely in a good many other countries than it is in the United States.

But inflation is always a latent danger to an economy. I mean I always think of inflation as being in remission at all times, because it’s something that has a cause that will recur, in terms of human behavior, from time to time, I think, in terms of how legislatures behave and governments behave.

So, I think that the probability of high inflation at some point during the next, say, 20 or 30 years is… it’s not a low probability. I hope it doesn’t happen.

Charlie, do you have anything?

Charlie Munger:

Well, in the long-term practically all currencies go to hell. In other words, it’s a product, like the Roman… what was it, denarius or something?

You take the British pound, you take the American dollar, so far.

And if you want to go out 200 years, will some politicians in the United States ruin the currency? I think the answer is yes. But I wouldn’t anticipate some horrible event in the near future. And…

But if things really went to hell, Argentina started confiscating property of shareholders. And if that starts happening and the government is doing it, we probably won’t be able to protect you.

Warren Buffett:

That sounds like kind of a nervous laugh to me.

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