I've read Dalio too, and find his theory interesting. It makes one notice the symptoms of decline that he notes. However, all societies are simultaneously growing and declining in different ways, just like some trees in a forest are always growing and some are always dying. A "healthy" forest will have a decent amount of dead and dying trees,
As far as China controlling the world's reserve currency, there are a several barriers their society will have to cross before that becomes a possibility. That said, none of these barriers is an impossibility. It all depends on the government's goals.
First, the world uses dollars because US-based markets offer a rules-based order with courts that will enforce contracts to the letter, regardless of nationality. Not everywhere is like that, and not China in particular. Remember when BP tried to invest in Russian oil projects and the oligarchs just expropriated their assets and ran them out? Yea, the world remembers too, and that's why investors are reluctant to put capital into autocratic places where influence within the regime counts for more than any law. Lo and behold, Russia's attempts to create a ruble-based parallel market for oil are going nowhere. China could, in theory, set up a better judicial system and start protecting foreign investors even at the expense of influential citizens. However, any truly independent judiciary would be a check on the power of the CCP, and the CCP is not a fan of checks and balances.
Additionally the US offers investors and traders a lot of industry standards. The established rules on stock settlement, disclosures, reporting, futures contracts, options contracts, forex contracts, commodities contracts, and accounting standards leave little room for the sort of shenanigans and scams investors fear when they wade into foreign markets. China could arguably set up a functional industry standards system within a few years, but too much transparency creates issues for a hybrid capitalistic/centrally planned economy, where the capitalists could see the government's moves and profit from them, or expose the government's corruption.
Most importantly, we should remember that the CCP's biggest (only?) threat comes from the class of wealthy merchants whose power and influence are growing as China grows. Throughout Chinese history, dynasties have always been overthrown, and rebellions were always led by the wealthy class. The CCP had to make an example of Jack Ma, and they've made examples of several other wealthy celebrities as a shot across the bow for the capitalistic aristocracy. China needs their millionaire/billionaire class to lead the businesses that drive growth, but the CCP also needs to find ways to keep them in their place. If property rights became as sacrosanct as they are in the West, defended by a court system independent from the party and based on rules that not even the government could violate, the Party would lose several levers of control over their restless and ambitious billionaires. The CCP has two goals: stability first and foremost - with no challenge to the ruling party, and economic growth second. Setting up a US-style financial system would involve the CCP giving up a lot of power. It would be putting economic growth first, while empowering the same class of people they massacred in the Cultural Revolution in a bid to stay in control.
We in Western representative democracies tend to assume economic growth is a top priority for any government, but that is a fallacy. Our politicians literally promise us high-paying private-sector jobs, despite having little control over those, and that's as close as they get to having a winning strategy for staying in power. For a one-party authoritarian state, the #1 priority is staying in control. For individual politicians within such a government, the priority is fending off challengers. The nightmare keeping Chinese bureaucrats awake at night is the prospect of being replaced by businesspeople or rich people. Whatever happened to Jack Ma occurred at the same time the Chinese were watching Donald Trump demolishing America's existing systems of government and purging the existing bureaucrats.
Last, China watchers have noticed that Xi Jinping has consolidated power around himself, and essentially rules China more like an emperor than a president or party leader.
https://cisac.fsi.stanford.edu/news/chinas-leadership-power-increasingly-concentrated However, concentrated decision-making power always comes with an unfortunate tradeoff - worse decision-making. As he ages, a sycophant-surrounded Xi can be expected to make a series of anti-economic decisions as his advisors jockey for succession and isolate him from certain perspectives. In the next decade, we could see Xi clamp down on his perceived opponents in the business class, ending China's economic ascent for at least a generation. This outcome is at least as likely - and historically more likely - than the outcome where China becomes the world's financial hub. The Cultural Revolution didn't make sense to Westerners either.
The funny thing is, China could have copied America's legal systems, courts, market standards, a regulatory infrastructure, and oversight / law enforcement systems years ago, free-floated their currency years ago, and ushered in a massive economic boom driven by foreign investment that would have put the U.S. in a distant second or third place. It's telling that they didn't do these relatively simple things, and preferred a more manageable pace of mercantilist growth.
The scenario everyone discounts is the one where the U.S. and China decline together. When the CCP decides economic growth is more of a threat than an asset, it does another Cultural Revolution and starts seizing the assets of foreign investors, ending the era of growth. Meanwhile maybe the U.S. continues to elect mealy-mouthed, narcissistic TV actors who make horrible decisions until the public grows frustrated with a system that constantly promises to solve all their problems but never delivers, and so along comes a Hugo Chavez / Recap Erdogan / Vladimir Putin with promises to break up that current system. Amid the power vacuum, maybe the EU moves past its decades-long forming, storming, and norming phases and starts performing. Or maybe the next generation of Indians rejects the lowbrow Hindu nationalism that is popular today and they become the next economic miracle country where everyone is advised to invest. In India, at least, the interests of the elected politicians are more aligned with economic growth.
Dalio makes a good case, but I'd like to read a detailed rebuttal before I buy into the narrative that the world will flock to a digital currency issued by the same form of government which currently rules Cuba and North Korea.
