Amid global economies grappling with uncertainty and witnessing currency devaluations, billionaire investor Ray Dalio has identified the warning signs that indicate a fiat currency is on the edge of collapse.
Dalio, the founder of Bridgewater Associates, one of the world’s largest hedge funds, shared his insights in a YouTube video posted on June 29.
According to Dalio, the first sign is when those who hold a country’s debt start selling it off. This creates a significant supply-demand imbalance and raises concerns about the currency’s stability.
Picks for you
The second warning sign is when the government’s central bank is forced to step in and print money to purchase the debt in large quantities. This action indicates a lack of interest from other investors and further erodes confidence in the currency.
“The clearest indicators of when a fiat currency is going to decline into collapse is when those who are holding its debt sell the debt, and the government central bank has to print money to buy that debt in large size,” Dalio said.
Path to currency devaluation
Furthermore, Dalio emphasized that when these two indicators align, it becomes critical to watch out for the third sign, currency devaluation. Notably, when a fiat currency’s value declines rapidly, it signifies a loss of trust in its stability.
The renowned investor compared this situation to a bank run, where people rush to withdraw their money due to concerns about the bank’s solvency.
Similarly, when investors sell off a country’s debt and the central bank resorts to printing money, it sets off a chain reaction that can ultimately lead to a collapse in the currency’s value.
While Dalio did not mention specific countries or currencies in the video, most global currencies have faced significant devaluation due to rising inflation and interest rate hikes.
Dalio on investment
The devaluation of fiat currency has played a role in reshaping investment options, as highlighted by Dalio, who previously offered a glimpse into his portfolio. A report by Finbold in May 2022 revealed that Dalio had a small allocation to Bitcoin (BTC) within his portfolio. He also emphasized the importance of diversification as the “Holy Grail” of investing.
Dalio acknowledged the remarkable progress made by Bitcoin in the past decade, noting that it reached an all-time high of nearly $69,000 in late 2018. This recognition of Bitcoin’s growth underscores the evolving landscape of investment opportunities and the need to consider alternative assets to achieve a balanced portfolio.
Watch full video below:
