Elon Musk reveals what’s sealing the fate of the fluctuating U.S. dollar. He believes that de-dollarization is inescapable and could eventually lead to other countries stopping the use of the dollar altogether. However, despite the decline, experts still believe that the dollar’s dominant position in the global economy is not yet threatened.
Elon Musk, took to Twitter on April 25th to voice his concerns about the weaponization of the US dollar through economic sanctions imposed on other countries.
According to Musk, these sanctions have led to a decrease in the use of the greenback in international trade, as other nations seek to free themselves from dependence on America and its policies.
Musk’s comments came in response to a user on the platform that cited data from Morgan Stanley, which showed that the dollar’s share in global trade had decreased from 73% in 2001 to 55% in 2020.
The user claimed that de-dollarization is happening rapidly, with the dollar’s share dropping to 47% since the imposition of sanctions on Russia.
Musk agreed with this analysis, warning that if the currency continues to be weaponized, other countries will eventually stop using it altogether. The implications of such a shift could be significant, as the dollar has long been the dominant currency in global trade and finance.
If you weaponize currency enough times, other countries will stop using it
— Elon Musk (@elonmusk) April 25, 2023
Fall of Dollar
De-dollarization refers to the process by which countries and entities reduce their reliance on the US dollar in international trade and financial transactions.
Traditionally, a currency’s value depended on the assets of the country that issued it. After World War I, the US replaced the British Pound as the global trade currency due to a large gold reserve. The Bretton Woods Agreement in 1944 further promoted the use of the US dollar for bilateral trade.
However, by the late sixties, the London Gold Pool dissolved, and the US faced a negative balance of payment crisis. In 1971, President Nixon canceled the convertibility of the US dollar into gold, making its value dependent on global demand rather than American assets.
The introduction of Petro Dollars and US contributions to global agencies further raised demand, and by the late nineties, nearly 90% of global trade occurred in US dollars.
The US printed more dollars to cover demand, and today, the US has issued hard currency worth nearly $4 trillion and US treasury bonds worth $38 trillion, nearly 80 times the assets of the US Treasury.
The US dollar’s dominant position in the global economy has been challenged by the introduction of the euro and bilateral agreements between countries to avoid dependence on the greenback.
Economic sanctions imposed by the US on countries such as Russia have led to the development of alternative payment gateways, further reducing the use of the US dollar in global trade.
In the last four years, the total circulation of the US dollar has declined by over 20%, and it is expected to further decline to 40-45% in the next 2-3 years. Other currencies such as the euro, Chinese Yuan, and Indian rupee are gaining ground.
Just a Narrative or Reality
Yes, the U.S. dollar is losing its value, but experts still believe that it can be hard for any other currency to dethrone U.S. Dollar just yet. Despite China’s aspirations to unseat the US dollar, experts argue that there is no viable alternative.
The Yuan lacks the institutional quality, investor protections, and capital-market openness required to internationalize. While the US’s political divisions pose the most serious threat to the dollar’s global status, the dollar remains dominant.
Its share of the central bank’s foreign-exchange reserves declined since 1999, but it still accounts for 58% of the total, nearly twice the combined share of the euro, yen, pound, and Yuan. The euro accounts for only 20% of central bank reserves, while the Yuan’s share is below 3%.
Elon Musk believes that the US dollar’s weaponization through economic sanctions is leading to de-dollarization, which could eventually cause other countries to stop using it altogether.
However, as Elon Musk reveals what’s sealing the fate of the fluctuating U.S. dollar experts still believe that the dollar’s dominant position in the global economy is not yet threatened by any viable alternative, despite the decline in its share of central banks’ foreign-exchange reserves.
Source: Elon Musk Tweet