As the U.S. share of the global economy shrinks and China’s role in international trade expands, fewer countries are willing to hold U.S. dollars, noted billionaire Ray Dalio. The founder of the world’s largest hedge fund also said Western sanctions against Russia have highlighted new risks to holding dollar assets.
The dollar is debt,” central banks are unwilling to hold it
The importance of U.S. fiat currency in international trade is declining, and as a result, the dollar’s dominance is fading, said billionaire investor Ray Dalio in a recent interview on Youtube. He also noted that sanctions imposed when Russia invaded Ukraine have exposed new threats to governments that hold assets in US currency.
The founder of Bridgewater Associates said on the Julia La Roche Show last week that “central banks around the world are not very interested in holding greenbacks” (20). The dollar is a liability.” In other words, when you hold dollars, central banks, they hold debt assets,” he said, according to excerpts cited by Business Insider on Tuesday.
Dalio elaborated that countries have been willing to take on such liabilities in order to conduct international transactions because the dollar has been widely used for international transactions. However, the need for dollars may diminish in the future as China promotes the use of its own currency, the yuan, in trade deals with countries such as Brazil and Kazakhstan.
At the same time, Western financial restrictions on Moscow have turned the Russian economy toward the yuan, and Russia has also frozen $330 billion in currency reserves, making it even more unable to trade in dollars or euros. Dalio believes that the sanctions have increased the perception of risk associated with dollar assets. He concluded:
For these reasons, the willingness to hold U.S. dollar-denominated debt has decreased, i.e. the U.S. dollar has declined. Supply and demand are deteriorating, especially as we continue to have to sell dollars internationally to finance our deficit debt.
In ainterviewon Tom Bilyeu’s Youtube channel posted on Saturday, Ray Dalio again highlighted the weaponization of the US dollar as a factor in its declining role.” The greatest weapon of the U.S., as distinct from military weapons, is sanctions. In other words, sanctions are the freezing of assets, and those assets are bonds. That’s what happened in Russia, and there is a threat of that in other countries, such as China,” he explained.
Recently, many public figures, from Fox News host Tucker Carlson to U.S. Treasury Secretary Janet Yellen, have acknowledged that sanctions policies could undermine the greenback’s hegemony. Within the next decade, the U.S. dollar will not play a much more dominant role than it does today.