Billionaire Ray Dalio says countries are now less eager to buy US dollars as America faces fresh competition against China in the realm of international trade.
In a new interview on The Julia La Roche show, the investing legend says that central banks around the world are now shying away from accumulating more US dollars as they believe their portfolios are already bloated with USD.
“Dollars are debt. In other words, when one holds a dollar, a central bank, they hold a debt asset, and generally speaking the world is holding a lot of US dollar denominated debt, so the holders of that would say, ‘I’m already overexposed to US dollar denominated debt.’ And so there’s less of an eagerness to buy the debt.”
According to Dalio, other countries see two main risks in accumulating more USD. The billionaire investor says America’s sanctions against Russia showed how the United States could easily block a country’s access to its US dollar reserves. Dalio adds that China’s rise in international trade is also a factor that dissuades other nations from increasing their US dollar holdings.
“That eagerness to buy the debt is also reduced by two main things. One is the United States’ share of world trade has gone down and China’s has gone up, and so you save [USD] really for spending internationally for that reason. And then also sanctions have incresed the perceived risk that those debt assets can be frozen in the way that they’ve been frozen for Russia. So, around the world, different countries increasingly have that risk.
So for those reasons, there’s less desire to hold US dollar denominated debt, which means yes, less US dollars. So the supply-demand picture is worsening particularly as we continues to have to sell them internationally to fund the [budget] deficit.”
