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Ray Dalio Warns of Threat to Dollar as Reserve Currency

Currencies Sep 15, 2020 05:00PM ET
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© Bloomberg. Ray Dalio Photographer: David Paul Morris/Bloomberg

(Bloomberg) -- The dollar’s decades-long position as the global reserve currency is in jeopardy because of steps the U.S. has taken to support its economy during the Covid-19 pandemic, according to Ray Dalio, founder of hedge fund giant Bridgewater Associates.

While equities and gold benefited from the trillions of dollars in fiscal spending and monetary injections, those efforts are debasing the currency and have raised the possibility that the U.S. will go too far in testing the limits of government stimulus, Dalio said Tuesday in an interview with Bloomberg Television.

“There is so much debt production and debt monetization,” Dalio said.

The Bloomberg Dollar Spot Index has dropped 10% from its peak in late March as investors responded to the pandemic and efforts by central bank and government officials to contain the economic fallout. All of the world’s major developed currencies have gained against the dollar as have precious metals such as gold, silver and platinum.

Dalio said in July that investors should favor stocks and gold over bonds and cash because the latter offer a negative rate of return and central banks will print more money. Bridgewater has been moving into gold and inflation-linked bonds in its All Weather portfolio, diversifying the countries it invests in and finding more stocks with stable cash flow.

Bridgewater’s flagship Pure Alpha II hedge fund has had a tough year, tumbling 18.6% through August, amid the market turmoil fueled by the pandemic. The firm took a hit at “the worst possible moment” because its portfolios were positioned at the start of the year to benefit from rising markets, Dalio told clients in mid-March.

The Westport, Connecticut-based firm manages about $148 billion, down from roughly $160 billion at the start of the year.

©2020 Bloomberg L.P.

Ray Dalio Warns of Threat to Dollar as Reserve Currency
 

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Comments (4)
Tray Williams
Tray Williams Sep 20, 2020 2:18PM ET
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Helps to make the argument what currency would replace it. The answer is none.
Michael Angelo
Michael Angelo Sep 15, 2020 10:25PM ET
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Stop with science fiction. If the US lose the dominance with the dollar is finished as a power. Debt must be paid in some strong currency, deficits will be a real problem and don't expect a power without a dominant currency. Look UK, lost the pound became just another country. Also don't forget that we have save our a*s*s printing money for long while.
Picaso Fish
Picaso_Fish Sep 15, 2020 7:33PM ET
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At least if the usa loses it's reserve currency it will be able to have more inflation. That should make the fed happy. It's been explained to me that when France purchases oil from saudi arabia in usd that it allows for greater abuse of the money printing mechanic without causing inflation. Usa would suddenly have to trade fairly with other nations. Can you imagine the rioting / belly aching this would cause??
Picaso Fish
Picaso_Fish Sep 15, 2020 7:33PM ET
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After thinking about this some more, I realized who this benefits the most. Saudi Arabia then the usa. Bad for everyone else, also explains why the usa is so reluctant to tarrif or sanction the kingdom.
Zach Lohman
Zach Lohman Sep 15, 2020 6:03PM ET
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So aging population, automation, tech in general, the defusion of any inflation to all parts of the world due to dollar reserve status will all be beat by one year of stim? Dubious and doubtful.
Picaso Fish
Picaso_Fish Sep 15, 2020 6:03PM ET
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Zach, 61 cents of every us dollar spent by the us government is printed not taxed. Some people including us bankers are privately discussing ways for the rest of the world to reject the USD. I think Dalio is likely an patriot and is sending an warning
Zach Lohman
Zach Lohman Sep 15, 2020 6:03PM ET
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Picaso Fish No doubt, honestly I have no idea if inflation or deflation will win out and I do think the US gov plays a dangerous game. I know there are powerful forces on both sides though. My own portfolio has gold and some other currencies beyond the dollar. I also haven’t seen real inflation since pre-08 (to me, USD dropping against financial assets and other currencies isn’t the same as main street inflation) Best to be as prepared as possible for anything either way.
 
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