Renowned billionaire investor, Ray Dalio, has noted that fewer nations are willing to hold the U.S. dollar as America’s share in the global economy becomes smaller while China’s role in international trade expands. He also stated that Western sanctions on Russia have highlighted new risks of keeping dollar assets.
Dalio emphasized that the importance of the U.S. fiat in international trade is decreasing, and as a result, the dominance of the dollar is fading. Central banks around the world are less inclined to hold the greenback, he remarked on the Julia La Roche Show last week. “Dollars are debt. In other words, when one holds a dollar — a central bank — they hold a debt asset,” he stated.
Previously, nations have been willing to expose themselves to such debt so that they can trade globally as the dollar has been widely used in international transactions. However, with China promoting the use of its currency, the yuan, in trade deals with countries like Brazil, Kazakhstan, and others, the need for the dollar may decrease in the future.
At the same time, Western financial restrictions on Moscow have been pushing the Russian economy towards the yuan while Russia also saw $330 billion in currency reserves frozen, further preventing it from transacting in dollars or euros. Dalio believes that the sanctions have increased the perceived risks associated with dollar assets.
Dalio again highlighted the weaponization of the U.S. dollar as a factor for its diminishing role. “The United States’ greatest weapon to use, as distinct from military weapon, is sanctions. So, sanctions means you freeze assets, those assets are the bonds. That happened with Russia and there are threats of it with other countries, China and so on,” he explained.
A number of public figures have recently acknowledged that sanctions policies can hurt the hegemony of the greenback, from Fox News host Tucker Carlson to U.S. Treasury Secretary Janet Yellen. Within the next decade, the U.S. dollar will play a much less dominant role than it is today, partly due to its weaponization, renowned economist Jeffrey Sachs was quoted as saying earlier in April.
These comments come amid efforts for “de-dollarization” led by BRICS, of which Russia and China are members. As the dominance of the dollar fades, investors will need to consider other options for their portfolios.