reserve currency

Fiat is in ‘jeopardy’ but Bitcoin, stablecoins aren’t the answer either: Ray Dalio

The hedge fund manager instead wants to see an “inflation-linked coin” be brought to the masses which would serve to ensure consumers secure their buying power.

Billionaire investor Ray Dalio has described fiat currency as being in serious “jeopardy” as an effective store of wealth but doesn’t believe Bitcoin (BTC) and stablecoins will be the solution either.

The founder of hedge fund firm Bridgewater Associates explained on CNBC’s Squawk Box on Feb. 2 that the mass money printing of the United States dollar and other reserve currencies has him questioning whether they are forms of “effective money.”

“We are in a world in which money as we know it is in jeopardy. We are printing too much, and it’s not just the United States, it is all the reserve currencies.”

However, Dalio was quick to add his thoughts on whether Bitcoin was a potential solution, acknowledging that despite what it has accomplished in “12 years,” it is still too volatile to serve as money:

“It’s not going to be an effective money. It’s not an effective store holder of wealth. It’s not an effective medium of exchange,” he argued.

He also dismissed stablecoins as an effective form of money, as they are replica of state-backed fiat currency.

Instead, Dalio proposed the creation of an “inflation-linked coin” that would serve to ensure consumers secure their buying power.

“The closest thing to that is an inflation index bond, but if you created a coin that says OK this is buying power that I know I can save in and put my money in over a period of time and transact in anywhere, I think that would be a good coin,” he said.

“So I think you’re going to see the development of coins that you haven’t seen that probably will end up being attractive, viable coins. I don’t think Bitcoin is it,” he added.

However, not everyone agreed with Dalio’s take on Bitcoin and the viability of an inflation-linked coin.

Digital asset manager Eric Weiss of Bitcoin for Family Officers was one, telling his 38,300 Twitter followers that such a coin could not exist:

“According to Ray, [Bitcoin] is very close to being the solution to the world’s problems but it’s too volatile. He’s waiting for and vaguely describes a solution that doesn’t and can’t exist,” said Weiss.

ARK Invest CEO Cathie Wood also had a different view of Bitcoin, referring to it as a defense against wealth confiscation in parts of the developing world:

“Those populations need a fallback, an insurance policy like Bitcoin,” she said.

Related: Crypto-friendly Ray Dalio steps back from Bridgewater’s $150M fund

Dalio’s latest views on Bitcoin come despite once having labeled it “one hell of an invention” that could serve as a viable inflation hedge. However, these remarks were made on Jan. 28, 2021 — before the current bear market took effect.

The billionaire investor has also previously recommended BTC should make up 1-2% of an investors portfolio on Jan. 6, 2022.

As an investment product, the hedge fund manager said back in May 2021 that he would rather buy BTC over bonds but stated a few months later that he still prefers gold.

On Oct. 4, Dalio stepped down as Bridgewater’s co-chief investment officer, but he remained on board as a mentor.

Fed conference hears stablecoins may boost USD as global reserve currency

The underlying tech of a central bank digital currency wasn’t enough to convince some panelists at a Fed conference that it could change the international currency system.

A note published by the United States Federal Reserve at a recently held conference found a majority of exports believe a U.S. dollar central bank digital currency (CBDC) would not drastically change the global currency ecosystem.

Panelists at the conference also agreed that CBDC development outside of the U.S. doesn’t threaten the status of the dollar, but the development of cryptocurrencies could alter the role of the dollar globally, with some saying stablecoins could even boost the U.S. dollar’s role as the global dominant reserve currency.

The assessments came from expert panelists at a June 16 and 17 conference hosted by the Federal Reserve on the “International Roles of the U.S. dollar” collated into a note and published by The Fed on Tuesday. The conference was used to gain insight from policymakers, researchers and market experts to understand “potential factors that may alter the dominance of the U.S. dollar in the future,” including new technologies and payment systems.

A discussion on a panel addressing digital assets and if CBDCs would provide advantages for the dollar had panelists agree that the underpinning technology alone wouldn’t “lead to drastic changes in the global currency ecosystem”.

Speakers on the panel included digital currency initiative director at MIT Neha Narula, head of research at the Bank of International Settlements Hyun Song Shin, chief investment strategist at asset management firm Bridgewater Rebecca Patterson and HSBC bank’s head of FX research Paul Mackel.

The panelists agreed that factors such as market and political stability, along with market depth, are more crucial for dominant reserve currencies like the U.S. dollar than the development of a Fed-issued digital dollar.

The development of CBDCs by other countries was also generally agreed by the panel to have a tendency to focus more heavily on that country’s own domestic retail market and, therefore, was considered “not a threat to the U.S. dollar’s international status.”

The Federal Reserve noted the amount and scope of CBDCs for making cross-border payments are “still quite limited,” suggesting that these systems don’t yet pose a threat to the dollar, which accounts for a majority of international financial transactions, according to an October 2021 note.

Focusing on cryptocurrencies, panelists said further development of digital assets could change the international role of the dollar, but adoption by institutional investors was throttled by a lacking regulatory framework, leaving the current crypto market to be dominated by speculative retail investors.

Another panel including Fed financial research adviser Asani Sarkar and finance professor Jiakai Chen concluded that part of the demand for crypto, especially Bitcoin (BTC), was driven by a desire to evade domestic capital controls, citing BTC prices in China trading at a premium in comparison to other countries.

Despite this, the Fed says panelists didn’t see crypto as a threat to the global role of the dollar in the short term. Some even suggested in the “medium run” that crypto could reinforce the dollar’s role if “new sets of services structured around these assets are linked to the dollar,” a likely reference to stablecoins, cryptocurrencies pegged to the value of a fiat currency (usually USD).

Related: US lawmaker lays out case for a digital dollar

The advice by panelists may help put a new spin on things for members of the Federal Reserve.

Previously, the Federal Reserve Board of governors said in June that stablecoins not sufficiently backed by liquid assets and proper regulatory standards “create risks to investors and potentially to the financial system” likely referencing the collapse of TerraUSD Classic (USTC).

The comment by the Board came before Federal Reserve chair Jerome Powell stated a CBDC could “potentially help maintain the dollar’s international standing.”