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Dollar's Dominance to End: Hedge Fund Titan Dalio

Ray Dalio, Founder, President & CIO at Bridgewater
Source: bwater.com
Ray Dalio, Founder, President & CIO at Bridgewater

The dollar's dominance in the world will diminish, due to increased pressure from emerging markets to raise interest rates to slow their economies over the next 18 months, Ray Dalio, founder & CIO of Bridgewater Associates told CNBC.

"It's inevitable that the dollar's role as the world's currency will diminish from the dominant world currency to one of a few," he said.

"It will fade probably fairly quickly so the United States which accounts for almost two-thirds of the reserves will probably go down to 50 percent of the world's reserves and it will have an effect on lending," he added.

Due to a new world order of indebted developed nations including the United States, the countries of the Euro Zone and Japan, and growing emerging economies which now account for 53 percent of the global economic growth, monetary policies in rising economies are "inappropriate," Dalio said.

"If you have currencies that are linked, you have interest rates that are linked, and it's created totally uneconomic behaviors in those countries," he said. "This is going to be the next big seismic shift."

By 2012, it will become "intolerable" to maintain those currency links, Dalio said. By keeping those currencies linked and keeping interest rates the same, it has made it a "one way street for investors," he added.

"When you get to China with a 5 percent rate and a 15 percent nominal growth rate, it's a no brainer," he said. "You don't want to lend; you want to borrow. And that creates a fuel in a bubble."

Bridgewater Associates is the world's largest hedge fund, with $89 billion under management. It has returned more to its investors than Google, Amazon , Yahoo and eBay combined.