In a recent interview at this year's Davos Forum, Ray Dalio, founder of Bridgewater Associates and author of the bestselling book "Why Nations Fail," once again raised a judgment that could alert global markets: the global monetary order is heading towards collapse.
This is not a sensational headline, but rather Dalio's systematic observation and long-term research conclusion regarding the current global monetary system, capital flows, and the geopolitical landscape among major powers.
What does "the monetary order is collapsing" mean?
Dalio's core definition is: the so-called "collapse of the monetary order" does not refer to an instantaneous collapse of the monetary system, but rather that fiat currencies and debt are losing their status as a means of storing wealth.
In his view, there are two key changes:
Central banks around the world are no longer willing to hold large amounts of dollar-denominated debt assets as their main reserves, as they did in the past.
Developed economies, represented by the United States, continue to "produce" more debt, while the global demand for this debt is declining.
He pointed out that this is clearly reflected in market prices and central bank balance sheets: over the past year, the biggest gainers have not been in the tech sector, but in the gold market, and the performance of the U.S. stock market has significantly lagged behind some overseas markets.
After the trade war, a more dangerous "capital war"
Dalio warns that while people discuss trade deficits and tariffs, they often overlook a deeper risk: behind the trade war, there is also a "capital war."
His logic is straightforward:
On one side are countries that hold large amounts of dollar assets (especially U.S. Treasury bonds), which are concerned about the loss of control over U.S. fiscal and monetary policy.
On the other side is the U.S. itself, which heavily relies on the continuous issuance of new debt to maintain operations, and is also worried about the "withdrawal" of external funds.
As geopolitical conflicts escalate and mutual trust between nations declines, "even allies are no longer willing to hold each other's debt in large amounts, preferring to turn to hard currencies." This has repeated itself throughout history.
In this game, capital itself begins to be treated as a "weapon," with flows, pricing, and structure carrying significant political attributes, which is what he refers to as the "capital war."
Who is selling debt, and who is buying gold?
When the host asked, "Who is driving these changes?" Dalio's answer was very clear: the data is public, and the actions of central banks and sovereign wealth funds have already provided the answer.
He summarized several trends that are currently occurring:
Many countries are reducing their dependence on foreign debt, especially U.S. Treasury bonds.
Central banks and sovereign wealth funds are systematically increasing their gold holdings, viewing it as an important reserve asset and portfolio "diversifier."
At the same time, major issuing countries like the U.S. are "increasingly buying back their own money"—indirectly digesting new debt through their central banks and financial systems.
In Dalio's context, this reflects a simple yet harsh reality:
Debt is increasing, but the number of "natural buyers" willing to hold it long-term is decreasing.
Gold: not a speculative asset, but a "second reserve currency"
In this systemic restructuring, gold is once again taking center stage. Dalio repeatedly emphasizes:
Gold is not a metal for "speculation," but the world's "second largest reserve currency."
Throughout history and into the present, it has played the role of the "ultimate collateral" in the monetary system.
When the host mentioned new forms of assets like Bitcoin and digital currencies, Dalio did not deny their importance in the discussion of "what money is," but he intentionally redirected the topic to a more fundamental question:
"What we really need to discuss is the value basis of money."
Within the framework of central bank asset allocation, gold still holds an irreplaceable institutional position—something that digital assets like Bitcoin currently struggle to challenge.
Debt, trust, and historical "analog moments"
When the host pressed: Is this the result of a particular government or certain policies (like tariffs), or is it a deeper cyclical inevitability?
Dalio's response was: this is a "structural result" with clear historical references.
When a country:
has an excessively large debt,
needs to continuously issue large amounts of new debt to cover deficits and repay old debts,
and the main holders of that debt begin to question its fiscal discipline and political stability,
the market will experience three chain reactions:
Excess supply of debt, insufficient demand, leading to a clear mismatch between supply and demand.
Creditors begin to doubt the long-term purchasing power and repayment ability of the debt currency.
Capital gradually shifts towards "hard assets" and "hard currencies," benefiting gold.
In a geopolitically tense environment, "even allies will reduce their holdings of each other's debt," a pattern that has appeared multiple times in history and is now simply repeating.
If you were Dalio, how would you allocate assets now?
When discussing how individuals and institutional investors should allocate assets currently, Dalio's advice is clear and actionable.
- First, establish a "neutral portfolio" ---------
His first step is not to "predict the market," but to construct a "strategic neutral portfolio" without subjective views:
Diversify across multiple assets, aiming for different assets to hedge and balance each other.
In this "viewless neutral portfolio," gold should account for about 5%–15%, as "it typically performs well when other assets do poorly, serving as an effective diversifier."
For central banks, he believes the current proportion of gold reserves is overall too low, and from the perspective of risk hedging and monetary system security, the proportion of gold in reserves should be increased.
- Then, make "tactical shifts" on the neutral portfolio --------------
On top of the "neutral portfolio," comes his personal tactical inclination:
Reduce the weight of bonds and long-duration debt assets.
Increase the allocation of gold, "overweighting" it relative to the neutral weight.
Even though gold has already experienced a significant rise, he still emphasizes, "the focus should not be on short-term gains, but rather: in a long-term uncertain world with debt expansion, do you hold enough insurance assets?"
The technological revolution: another main line alongside gold
It is worth noting that Dalio is not a pessimist who only talks about risks and not opportunities.
In his view, the world is currently undergoing a "remarkable technological revolution":
Artificial intelligence, cloud computing, and "hyperscalers" are reshaping industry ecosystems.
More importantly, a large number of mid- and downstream companies are set to undergo a new round of efficiency and business model restructuring by applying these technologies.
Therefore, in his asset allocation framework, "new technology" and "gold" are two parallel main lines:
One part of the portfolio bets on the productivity improvements and corporate value reassessments brought about by technology and innovation.
The other part of the portfolio hedges against systemic risks arising from the monetary system and debt cycles through assets like gold.
In his words: "A portfolio that mixes new technology with diverse assets, while also incorporating gold, is a more reasonable preference in the current environment."
A fundamental reminder for investors: first clarify "neutral," then discuss "views"
At the end of the interview, Dalio provided a reminder that is worth repeated reflection for both ordinary investors and institutional managers:
Before drawing conclusions, first clarify what your "neutral state" is.
In other words:
First define: if you have no opinion on the market, what should a reasonable, diversified, and robust asset portfolio look like?
Then consider: on top of this "neutral benchmark," in which directions are you willing to make "overweight or underweight" shifts?
If this framework is extrapolated to the national level—whether in China, Japan, or Europe, from balance sheets and foreign exchange reserves to sovereign fund allocations, every economy must rethink:
In an era of monetary order reconstruction, rising capital wars, and accelerating technological revolutions, what should one hold more of, and what should one hold less of?
This may be the real question Dalio wanted to raise at Davos: when money itself is being redefined, the question of "what is money" can no longer be answered with old answers.
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