Billionaire investor Ray Dalio warned in a podcast episode published Sunday, May 24, that a sequence of 13 steps will lead to Americans saving in U.S. dollars losing 40% of their savings. Dalio identified Iran's recent decision to accept tolls and sell oil in Chinese yuan rather than USD as evidence the world is between steps 9 and 10 in this process. He characterized the currency shift as part of a broader pivot away from the dollar's status as the global reserve currency. Historically, British savers lost 40% of their purchasing power after the Suez Crisis, a precedent Dalio cited as a model for what Americans may experience.
Dalio's analysis centers on the 'petrodollar'—the 1970s agreement between the U.S. and Saudi Arabia that OPEC countries would denominate and trade oil exclusively in dollars. This system guaranteed global demand for the dollar and provided financial stability to the U.S. and ease of borrowing to Washington. Dalio noted that after the freezing of Russian assets following the Ukraine invasion in 2022, major economies including China, India, Saudi Arabia, and Brazil reduced USD exposure to preserve policy flexibility.
Dalio's 13-Step Framework for Reserve Currency Decline
Dalio developed his 13-step model by studying historical replacements of reserve currencies and the rise and fall of empires including Spain, the Dutch, and Britain.
Steps 1–3: Economic and Technological Competition
- Step 1: China's economic rise from approximately 15% of America's economy at the turn of the century to roughly 70%.
- Step 2: Intensification of trade conflicts, exemplified by tariffs deployed during President Donald Trump's administration.
- Step 3: U.S. restrictions on China's access to advanced artificial intelligence semiconductors; China's refusal of downgraded Nvidia chips and development of internal capacity.
Steps 4–9: Geopolitical Fragmentation
- Step 4: Intensification of proxy warfare, including the Ukraine War, U.S. operations targeting Venezuela and Nigeria, pressure on Cuba, and conflict with Iran.
- Step 5: The reserve currency holder weaponizes its status through sanctions and restrictions. Dalio emphasized the message sent by freezing Russian assets to traditional USD holders like China, India, Saudi Arabia, and Brazil.
- Steps 6–7: Hardening of alliance blocs (Shanghai Cooperation Organisation, BRICS, NATO) and rerouting of supply chains to align with political arrangements.
- Step 8: Ongoing intensification of proxy conflicts running parallel with earlier steps.
- Step 9: Fragmentation of financial and technological systems across emerging blocs, evidenced by parallel AI development in China and the U.S., reduced dependence on American semiconductors in China, and domestic rare earths production in the U.S.
Step 10: Brinkmanship
Dalio identified step 10 as already underway, characterized by brinkmanship between major powers, including Trump's threats against Iran, Russia's implicit nuclear threats over Ukraine, and tensions in the South China Sea regarding Taiwan.
Currency Debasement and Asset Depreciation
Dalio warned that USD depreciation will trigger severe debt financing costs and necessitate money-printing to maintain U.S. global status. Unlike Britain's post-Suez decline, Dalio predicted the U.S. decline will be faster and result in greater purchasing power loss than the 40% experienced by British savers.
Gold has appreciated 140% over the past five years and approximately 40% in the past year, reflecting actual U.S. currency devaluation, according to Dalio. He cautioned that rising interest rates will erode the value of previously purchased bonds; 30-year U.S. treasuries recently crossed above 5% for the first time since the Great Recession, yet actual purchasing power losses exceed yield gains.
Investment Recommendations
Dalio advised against concentrating savings in U.S. dollars or bonds. Instead, he recommended:
- International diversification using vehicles such as the Vanguard Total International Stock ETF (VXUS).
- Commodity investments, particularly gold.
- Companies in commodity production, with focus on precious metals, oil, and food sectors, as USD decline will increase revenue and profits for these corporations.
Dalio explicitly stated he does not recommend fleeing to the Chinese market, citing the People's Republic's own economic problems and the difficulty of predicting outcomes in early-stage confrontations.
