Billionaire investor Ray Dalio cautioned that the world is “on the brink” of what he calls a “capital war,” which is what happens when countries use money and financial systems as weapons.

Dalio expressed the concern at the World Governments Summit in Dubai, United Arab Emirates, earlier this week. Speaking to CNBC’s Dan Murphy on stage, Dalio said that we are moving close to a capital war in which governments weaponize money using tactics like sanctions, trade bans, using debt holdings as leverage or restricting access to capital markets. 

While Dalio mentioned that the world is not in a capital war yet, he noted that tensions are high enough that it would be easy to spark one. 

“We are on the brink,” Dalio said. “That means not in, but it means we are quite close to [capital war], and it would be very easy to go over the brink into a capital war, because there are mutual fears.”

According to Dalio, increased fear and mistrust between nations causes instability. As an example, he called out rising fear between the U.S. and Europe over the Trump administration’s recent push to make Greenland a part of the U.S. Dalio suggested that some European investors worry their U.S. assets could be sanctioned or restricted, so the owner is not allowed to freely use or move them because of government rules. Meanwhile, Americans worry about losing access to European capital, Dalio said. 

This situation is all the more serious because European investors have recently made up a large share of foreign buyers of U.S. Treasuries. Investors from Europe comprised 80% of foreign purchases of U.S. Treasuries from April to November, according to Citi research. So any breakdown in trust could destabilize funding. 

Dalio added that countries are increasingly implementing capital controls, or rules that governments use to manage how money moves across their borders. Governments can design capital controls in many forms, including taxes or fees on certain cross-border transactions and limits on how much money individuals can bring in. Institutions such as central banks are getting ready for tighter financial restrictions, he claimed. If there is a capital war, governments would weaponize finance by freezing or seizing foreign assets or banning new lending and investment. They could also block access to capital markets.

Not all financial figures have the same alarmist view. Political economist Alexandru-Stefan Goghie argued against Dalio’s claim in a Substack post released earlier this week. Goghie asserted that talk of a looming “capital war” is more of a scary story than a realistic description of how today’s financial system actually works. He argued that Dalio’s framing over-militarizes normal financial dynamics, wrongly treating them as evidence of emerging conflict.

“A careful examination shows that what Dalio calls a capital war is mostly a repackaging of well-known trends… not necessarily evidence of an inevitable system-breaking conflict,” Goghie wrote.

Capital wars have historically sprung up around major conflicts. For example, before the U.S. entered the Second World War, the country imposed financial sanctions on Axis powers like Japan. In July 1941, the U.S. froze Japanese assets, dealing a blow to Japan because the order restricted the country’s economic activity. During the Cold War, from 1948 to 1991, the U.S. used export controls and financial restrictions as part of long-running economic warfare. 

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