Ray Dalio, the billionaire fund manager who was among the experts to advise the US Federal Reserve in recent months, has said interest rate cuts are not the solution to the turmoil in the credit markets.

Rather, Mr Dalio, founder and chief investment officer of money manager Bridgewater Associates, said the longer-term solution would involve currency policies – such as a revaluation of the Chinese renminbi – to address the US’s trade imbalance.

“Our current credit problems are the flip side of our balance of payments problem,” he told the Financial Times. “The world has been awash with liquidity and money has been pouring in from abroad, so lots of money had to get invested fast.

“The dollar being the world’s dominant reserve currency, coupled with the major surplus countries having their currencies pegged to the dollar, has led to a dollar denominated debt bubble – a lot of irresponsible lending in dollars. The mortgage crisis is just one reflection of this.”

Mr Dalio called for the Fed to stop cutting interest rates and to set a “realistic” target rate for US growth of 2.2 per cent a year. That would be the lowest since the 1930s, and below the 2.5 per cent that is the Fed’s target.

China needed to revalue its currency against the US dollar for the benefit of both countries, said Mr Dalio.

“The [renminbi] is where it is because of historical reasons that no longer apply and are unsustainable,” he said.

“The reason a dollar devaluation against China’s currency and other emerging market currencies is now good for both them and us is that we have exactly opposite concerns – they are concerned about their economy overheating and their foreign assets building up while we are concerned about our economy weakening and our foreign liabilities building up,” he said.