If fund managers are known for being more upbeat than cynical, why is Kevin Baum, portfolio manager of Oppenheimer Real Futures Fund, so downbeat about the greenback? In his view, the US dollar is not just weakening or readjusting, it is being debased in a style that has foreshadowed the ruin of many a great currency. Ranked number 11 out of the top 100 mutual fund managers in the United States by Barron's, Mr Baum is not so much predicting the doom of the world's reserve currency as the rise of a new asset class that will provide strong returns for years to come. He says commodity funds can act as an alternative currency, helping to hedge against dollar weakness. Investors, he says, should protect themselves by placing about 10 to 15 per cent of their portfolio in a commodity fund. Mr Baum is the New York-based manager of Oppenheimer's new commodity futures fund, and was recently in Hong Kong to promote the SFC-registered product. The fund invests in a combination of futures contracts and fixed-income securities. It uses a long-only structure, betting on rising prices in both industrial and agricultural commodities. Why is the dollar being debased? 'There has been a change in the behaviour of central banks,' he says. 'There has been a shift in behaviour where they keep one eye on inflation and another on economic growth, and try to manage policy with respect to growth.' Such a conflict of roles could be responsible for the negative interest rates we have today, the first seen in about three decades. Count Japan and China among those willing to support the low-interest rate regime, and the result is an accommodative monetary policy that is swamping the globe. Mr Baum says loosening the lending rate is a natural way to stimulate the economy in times of recession. But there is a danger when the policy incites copy-cat currency weakness at a time when the US has a record trade and fiscal deficit. 'I think most central banks are attempting to debase their currencies,' he says, adding that most of the world is trying to maintain a competitive exchange rate with the US dollar. 'Very few central banks want to see material increases in the value of their currency.' For the most part, the forces of globalisation have acted to keep inflation tame in the west, with prices falling as manufactured goods and services benefit from labour outsourcing and offshore production. So why worry about the consequences of soft-money policies if prices are falling? The trouble, he says, is that inflation may be starting to work its way through the cracks in the form of higher commodity prices. During the past year, prices have been heating up in the industrial metals, not to mention record highs for crude oil. 'The whole globalisation trend, or theme, is keeping inflation managed in some countries, but others - that see more of their economy geared towards manufacturing - are feeling inflationary pressures,' Mr Baum says. On the demand side, it is largely China's colossal building boom that is driving prices for copper, nickel, lead and a host of other industrial components. Mr Baum says it is unlikely China's demand will be satiated soon, as there are few signs of a slowdown despite all the talk about tightening credit. 'I truly believe this industrialisation process taking place has many more years to run. I don't think this is something that happens overnight or in one decade.' China's rising middle class will also ensure stable demand for new automobiles, consumer goods and other luxuries, lighting a fire under commodity prices for quite a while. With so much attention focused on the sector, is there any chance that commodities will be the next dotcoms? Not until new capacity comes online, which could take years, says Mr Baum. 'You have a situation where supply is not keeping pace with demand. ... Eventually there will be a supply response, but it is going to take a number of years to develop, so there is quite a bit more room to run. 'The world is trying to purse the same [monetary] policy: it suggests that something other than paper currencies has to hold up and be a store of value.'