Rumors of the U.S. dollar’s decline have been circulating for several weeks, prompting discussions about its future as the dominant currency for global trade since the Second World War. Speculation suggests that the dollar’s influence is waning, fueled by reports of Russia contemplating the use of China’s yuan for international trade and Saudi Arabia considering accepting yuan for its oil exports to China.

The situation escalated further when France expressed interest in purchasing gas from China using yuan, and Brazil and Beijing contemplated reducing their reliance on the U.S. dollar for bilateral trade. These rumors even suggested that the Brics countries (Brazil, Russia, India, China, and South Africa) were exploring the development of a new reserve currency, while India was settling some trades in rupees. The prevailing theme in these discussions was the ongoing de dollarization of the global economic stage, primarily embraced by conservatives and critics of President Joe Biden’s administration. According to this narrative, the demise of the U.S. dollar on the international stage was seen as inevitable.

Critics argue that the U.S. dollar’s decline is a result of the diminishing dominance of the U.S. economy, which no longer commands the same level of global influence it once did. They claim that this economic shift has paved the way for alternative currencies to challenge the dollar’s supremacy. Elon Musk, the CEO of Tesla and a prominent figure in global business, shares this viewpoint, stating that de dollarization is an inescapable consequence of the United States leveraging its currency as a weapon in international affairs. Musk expressed these sentiments in a Twitter thread, concurring with data from Morgan Stanley that highlights the declining share of the dollar in world trade since 2001.

While some experts argue that the dollar’s decline is inevitable, others believe that it will maintain its position due to the lack of a viable alternative. When the dollar replaced the pound sterling as the global trade currency in 1945, it solidified its dominance. Despite China’s aspirations, these experts assert that the yuan lacks the necessary investor protections, institutional quality, and capital-market openness to replace the dollar fully.

According to Ian Bremmer, founder and president of Eurasia Group, the greatest threat to the dollar’s global status comes from internal factors within the United States itself. He points to the nation’s political divisions, dysfunction, and growing inequality, arguing that these factors erode trust in America’s stability and credibility, posing a significant risk to the dollar’s dominance.

While the dollar’s share of central banks’ foreign exchange reserves has indeed declined since 1999, it still surpasses the combined shares of the euro, yen, pound, and yuan by nearly twofold, just as it did a decade ago. The euro, the closest competitor to the dollar, accounts for only around 20% of central bank reserves. Data from the International Monetary Fund reveals that the dollar holds 58% of central banks’ foreign-exchange reserves, followed by the euro, the Japanese yen, and the Chinese yuan, each with significantly smaller shares.