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China’s digital yuan will overshadow the digital dollar, Dalio says
Hedge fund boss Ray Dalio speaks in a TV interview. File photo by AFP.

US billionaire Ray Dalio says the digital yuan could become a ‘viable alternative for many investors’ if China’s economic fundamentals continue to strengthen and it is internationally accepted 

(AF) Bridgewater Associates founder and CEO Ray Dalio says China’s central bank digital currency (CBDC) – often referred to as the “digital yuan” – would be more competitive in terms of value and use compared with a potential digital version of the US dollar.

In an interview with CNBC, the billionaire investor said that when the United States issues its own CBDC, it will certainly have its uses and “be viable.” But he believed it would not be the most competitive digital currency, as its value could possibly be hit by growing debt levels.

The digital yuan, on the other hand, will be more competitive in terms of pricing and returns, according to Dalio.

“I think we’re going to enter a world in which people will be thinking which currency, and the ones that have the best fundamentals will be the ones that will be the most competitive and that’ll be threatening to countries,” he said.

With the expectation of China’s economic growth continuing to outpace the US economy, the digital yuan would be a very viable alternative to many investors if it is accepted internationally and comes with attractive interest rates, he added.

“I think you are going to see the renminbi become a more significant – a strong currency, stable currency, more attractive-returning currency, and also a more widely used currency in the years ahead,” Dalio told CNBC.

These views won’t surprise people who have followed Dalio in recent years. As Bloomberg wrote recently, the billionaire “has long been an advocate for China.”

Bridgewater Associates, which Dalio set up in 1973, is the world’s biggest hedge fund and manages assets worth more than $140 billion.

Digital currencies gaining steam

Central bank digital currencies have been gaining steam with monetary authorities around the world.

More than 60 countries are examining the use of CBDCs, which are essentially blockchain-based versions of fiat currencies, according to a report by PwC released in April.

The Bahamas’ Sand Dollar and Cambodia’s Project Bakong, which have both gone live, rank as the top two CBDCs in the report.

China’s much-discussed digital yuan, which is expected to be launched before the Winter Olympics in Beijing next year, ranks third in the PwC report.

The US Federal Reserve announced last year it was experimenting with a digital dollar in collaboration with research teams from Boston Fed and Massachusetts Institute of Technology (MIT).

China has extensively tested the protocol over the past three years, in terms of both legality and technological prowess, and rolled out the digital yuan in limited testing last year. Trials have been conducted in eight cities such as Beijing, Shenzhen, Suzhou, Chengdu and Shanghai involving over one million consumers.

The world’s second largest economy is also taking steps to boost the digital yuan’s international reach.

In February, the Chinese central bank’s clearing centre and digital currency research institute set up a joint venture with SWIFT, the global system for financial messaging and cross-border payments, in a sign that China is exploring global use of the digital yuan.

The Chinese central bank has also joined a project with central banks in the United Arab Emirates (CBUAE) and Thailand to test real-time cross-border foreign exchange payments using CBDCs.

While the US dollar continues to act as the single largest reserve currency, Dalio expects the yuan’s share to increase to approximately 10-15% in five to 10 years. But for the International Monetary Fund, China’s national currency still remains behind the Euro, the Japanese yen, and the British pound.

When asked about bitcoin in the interview, Dalio said that he anticipated China’s digital yuan would one day compete with the world’s largest cryptocurrency. But despite China’s recent efforts to ban the cryptocurrency, the digital yuan would not dominate crypto markets, he theorized.

“Nothing ever completely takes over anything,” he said.

 

ALSO SEE:

The digital yuan and its disruptive potential

The digital yuan and the power of currencies

Iris Hong

Iris Hong is a senior reporter for the China desk, and has special interests in fintech, e-commerce, AI, and electric vehicles. She began her career in 2006 and worked for Interfax News Agency and for PayPal before joining Asia Financial in July 2020. You can reach out to Iris on Twitter at @Iris23360981

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