Soros says euro cannot replace dollar as top currency

BRUSSELS (Reuters) - The euro cannot replace the dollar as the world's main reserve currency, and a system of two reserve currencies would be unstable, billionaire investor George Soros said on Thursday.

"I don't think the euro can replace the dollar, and a system with two major reserve currencies is not a stable system," Soros said.

The euro has surged to record highs against the U.S. currency as the U.S. economy is seen going into recession.

"What we have now is a period of instability and heightened uncertainty," Soros said.

He was in Brussels to promote his latest book, "The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means".

It was still a time of wealth destruction, Soros said, and he advised investors to find ways to preserve capital until it was clear how the authorities and markets would respond.

He said the main lesson from the current financial market turmoil was the need to control credit and not just money supply, and added that markets were not yet out of trouble.

"There is a commodities bubble still in the growth phase while other bubbles are being deflated," Soros said.

Soros said a key remedy to the current crisis of confidence among banks would be to move trading in complex securitised products such as collateralised debt obligations and swaps onto exchanges to boost transparency in counterparty risk.

"It would be desirable to regulate it. You need to have transparency on excessive use of leverage by participants. The root of the trouble is excessive leverage based on failure to recognise the uncertainty inherent in the system," he said.

Soros said hedge funds needed to be regulated like other market participants, with banks having better information about the amount of leverage hedge funds used.

"Banks need to have more reserves when lending to hedge funds," Soros said.