Elon Musk claims that the future of the U.S. dollar is predetermined.

There has been ongoing speculation for several weeks regarding the decline of the U.S. dollar, which has been the world's dominant currency for international trade since the end of World War II.

The U.S. dollar's decline has been a topic of discussion this year, with rumors fueled by several articles. These articles include headlines suggesting that Russia is contemplating the use of China's yuan for its global trade and reports that Saudi Arabia, a significant U.S. ally, is considering invoicing its oil exports to China in yuan.

Furthermore, France is reportedly considering purchasing gas from China using yuan, and both Brazil and Beijing are exploring the possibility of discontinuing the use of the U.S. dollar in their bilateral trade relations.

There were so many rumors circulating about the downfall of the U.S. dollar that some headlines went as far as to suggest that the Brics countries (Brazil, Russia, India, China, and South Africa) were exploring the creation of a new reserve currency. Additionally, India was reportedly settling some trades in rupees.

The underlying message of all this news was the devaluation of the U.S. dollar on the world economic stage. This narrative implied that the greenback was losing, or had lost, its position as the primary choice for global trade and finance. These ideas were mainly circulating among critics of President Joe Biden's administration and conservatives, who were predicting the inevitable demise of the U.S. dollar's dominance on the international stage.

The Narrative of Dedollarization

This narrative is primarily based on the fact that after World War II, the U.S. gross domestic product represented almost half of the world's GDP. As a result, the U.S. dollar became the primary currency for global exchange, store of value, and unit of accounting.

Critics argue that the U.S. economy no longer holds the dominant position it once did. Therefore, the reign of the U.S. dollar is coming to an end.

For Elon Musk, the CEO of Tesla (TSLA) and, in his view, the global CEO, dedollarization is inevitable. He believes that the U.S. has been using the dollar as a weapon on the world stage, as demonstrated by the economic sanctions imposed on other countries. Musk predicts that eventually, other countries will no longer want to use the U.S. dollar, as a way to free themselves from dependence on America and its directives.

This was expressed by the billionaire in a Twitter thread, which began with a user on the platform with whom Musk frequently interacts. The user referenced data from Morgan Stanley indicating that the dollar's share in world trade had significantly decreased since 2001.

According to the user, "De-dollarization is real and is happening fast," and the dollar's share dropped from 73% in 2001 to 55% in 2020. The imposition of sanctions on Russia caused the dollar's share to decline further, from 55% to 47%, and it is currently de-dollarizing at a rate 10 times faster than the previous two decades. The user included the hashtags #gold and #silver.

Musk agreed with this analysis and responded on Twitter on April 25, stating, "If you weaponize currency enough times, other countries will stop using it." As the CEO of Tesla, he believes that dedollarization is inevitable, and the U.S. dollar's dominance in global trade and finance will eventually come to an end.

However, some experts argue that the dollar is unlikely to be dethroned due to the absence of a viable alternative. The dollar replaced the pound sterling as the currency of global trade in 1945, and despite Beijing's ambitions, the yuan cannot take its place.

Ian Bremmer, founder and president of Eurasia Group, a political risk research and consulting firm, wrote in Gzero Media, a digital media firm he founded, that "Despite its growing role in the global economy and longstanding desire to unseat the dollar, China lacks the investor protections, institutional quality, and capital-market openness required to internationalize a yuan that is still not fully convertible overseas."

Bremmer believes that the most significant threat to the dollar's dominance comes from within.

Some experts believe that the U.S. dollar is still unlikely to lose its global dominance as there is no suitable alternative to replace it. The dollar became the currency of global trade in 1945, replacing the pound sterling. Although China aspires to replace the dollar, it lacks the necessary investor protections, institutional quality, and capital-market openness required to internationalize the yuan fully.

According to Ian Bremmer, founder and president of Eurasia Group, the greatest risk to the dollar's global status is internal. He argued that the United States is still the most powerful nation globally, but it is also the most politically divided and dysfunctional among major industrial democracies. He believes that the growing inequality, tribalism, polarization, and gridlock in the country could eventually erode trust in America's stability and credibility, undermining the dollar's global dominance.

Despite the decline in the dollar's share of central banks' foreign exchange reserves since 1999, it is still nearly double that of the euro, yen, pound, and yuan combined, as it was a decade ago. The euro, its nearest competitor for global-currency status, accounts for only about 20% of central bank reserves, while the dollar still accounts for 58% of foreign exchange reserves held by central banks, followed by the Japanese yen at 5% and the Chinese yuan at under 3%.

Elon Musk claims that the future of the U.S. dollar is predetermined.