According to billionaire Ray Dalio, as America faces new competition from China in the area of international commerce, countries are now less inclined to purchase US currency.
The legendary investor claims that central banks throughout the world are now hesitating to add to their holdings of US dollars because they feel their portfolios are already overflowing with the currency.
“Money is debt. The holders of that would argue, “I’m already overexposed to US dollar denominated debt,” because when one has a dollar, a central bank, they are owning a debt asset, and generally speaking, the globe is holding a lot of debt denominated in US dollars. As a result, there is less desire to purchase the debt.
Other nations perceive two key hazards in acquiring more USD, according to Dalio. The multibillionaire investor claims that American sanctions on Russia demonstrated how simple it was for the country to be denied access to its US currency reserves. Dalio continues by saying that other countries are deterred from growing their holdings of US dollars by China’s growth in global commerce.
“Two important factors also lessen the desire to purchase the loan. One is that China now accounts for a larger portion of global commerce than the United States, therefore you should definitely preserve [USD] for overseas purchases because of this. The anticipated danger that these debt assets may be blocked, as they have been for Russia, has increased as a result of sanctions. As a result, that risk is present in more and more nations throughout the world.
For those reasons, holding debt denominated in US dollars is less appealing, which results in a decrease in US dollars. Therefore, the supply-demand situation is getting worse, especially because we must continue to sell them abroad to cover the [budget] deficit.
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