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“It is a mistake for anybody to have just a digital currency and not have any gold or just having gold and not any digital currency. We will figure those things out as it will evolve over the next five and 10 years,” says Ray Dalio, Founder, Co-Chairman and Co-Chief Investment Officer, Bridgewater Associates.


What would the changing world order do to currency? Historically the dollar has been the storehouse of wealth and the world’s leading foreign exchange currency. Do you see this shifting to Chinese Renminbi or cryptocurrencies like Bitcoin?
All the currencies are now fiat currencies. The dollar of course is the leading world’s reserve currency. They are related to each other. In this environment of relative depression or relative lower prosperity, no country wants to see its currency go up too much. So the fiat currencies tend to be a manner of printing money and then lowering of that. We are in a temporary period that will probably last six to 12 months of a tightening in monetary policy. But that will be the correction in the trend and that tightening will produce weakness in markets to be followed by weakness in the economy, to be followed by another round of easing.

I want to be clear that the printing of money and a large debt will have a correction as there is this tightening coming up over the next six to 12 months. So as a store of wealth – by the way, they would not bring interest rates during that tightening to a level that will compensate for inflation – you will still lose money to inflation. That means it is still better off in those inflation hedged assets.

When we look at the currencies, we are used to looking at them in relation to each other but then there are non fiat currencies, Gold is an example of non fiat currency and then we have digital currencies which are newly developed and that is non fiat currency. We have entered a period of time over the next several years where the world is going to be looking for what is an acceptable currency. It is going to be confusing and so these currencies will compete with each other. There will be less attention to fiat currencies and more attention on others but still the dollar will be important and we will see the renminbi become a much more important currency.

Read Also: How to invest in a world facing 5 different kinds of war?


Where do cryptocurrencies stack in this new changing world order?
Cryptocurrencies have been really amazing. There are two types of cryptocurrencies, I am sure you are referring to the Bitcoin type in which the quantity is contained as distinct from other types of coins in which there is a variability such as Stablecoin on Ethereum. But anyway, amazing that they were programmed and have operated for 11 years now and have not been hacked and so on and have been acquired still there are issues with them.

The total value of a Bitcoin for example is less than the value of Microsoft and so when you think of different store holds of wealth, it is not very big. By the way, the gold market is not very big either! It is about five times the size if you take out central bank reserves and jewellery and they have issues. The transactions can be traced. The privacy issue is an issue as they cannot be controlled. They could be shut down and they can be made illegal which tends to happen during times when there may be a threat to the alternative currency.

So, I do not think they will be held as central bank reserves for various reasons. There is a saying that gold is the only asset you can own that is not somebody else’s liability. In other words, you own it and you do not have to wait for a payment from somebody else. We are in an environment in which there is a risk of political or other forms of confiscation. Gold does a better job but we are into this new environment and that can include NFTs and all sorts of things.

It is something that you can carry with you and that you can transact almost anywhere in the world because somebody will buy it. It is equally acceptable in most places, ideally private. I think in terms of its qualities, it is not as good a competitor. It is a mistake for anybody to have just a digital currency and not have any gold or just having gold and not any digital currency. We will figure those things out as it will evolve over the next five and 10 years.

We, Indians like the glitter of gold. Do you think for the next couple of years, gold should be a large part of a well diversified portfolio?
Gold is a dead asset. It is a beautiful, limited supply, dead asset which is money unlike say equities in which there is constant invention and productivity. But it is very important to own it sometimes while at other times, it is just going to be a bad asset. At these times, there is a a lot of debt and money creation and at times of conflict and times of wars, even allied countries want to lend to the other country because everybody is getting into debt and they will be paid back with a depreciated currency if they win the war.

I believe we are in an environment which is good for gold and therefore it should be a significant part but not a dominant part of the portfolio. What that might mean is maybe 15% of the portfolio would be quite a large allocation but under today’s circumstances, and then there should be other assets to diversify the portfolio.

You talk about the metrics that you need to really follow to understand the health of the economy and this is exactly the way we have track the vital signs to take care of the human body. In those metrics how does India stack up?
India stacks up as a country in which one of the most important indicators is the cost of an intelligent person, a cost of an educated person. That is a very good leading indicator and India stacks up very well in that regard. Its level of indebtedness, which is another important indicator, in comparison to other countries is relatively good.

These are two important indicators. The general level of education and infrastructure and internal conflict and so on are areas of greater concern. So, is the element of the bureaucracy. It is a country that probably will have the highest growth rate over the next 10 years. We have projected to have the highest growth rate of any country over the next 10 years because of the advantages of those things that I mentioned. So to the extent, if there are improvements which are underway, then India’s outlook looks very good.

My friends on Wall Street have one complaint which is that it is almost impossible to get Ray Dalio’s appointment and a job at Bridgewater?
It is regrettable but it is not totally true that I would not interact. In fact, I am on social media and I very much enjoy the interactions. I post every day and put things out and I respond to those on social media and I am having wonderful exchanges.

So, while it is true that it is difficult to have an appointment, it is not totally difficult to interact. It is probably easier to interact with me than with many people. As far as getting the job at Bridgewater is concerned, I am pleased to say that yes it is in high demand and it is some extent, like getting admitted to Harvard. We are looking at different things like character and so on and I sympathise with that point of view.

Of course I would encourage everybody to set up their own business too. I started Bridgewater and you can do that too. It is a wonderful journey and that by far is an important thing to keep an eye on, to evolve well yourself and do well which is really the purpose of my first book.

Thanks

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