The currency war is a struggle for the absolute ring, the reserve currency. After two World Wars, the British pound had to hand over the ring to the U.S. dollar. After the Vietnam War in the early 1970s, the dollar broke the chain of the gold standard and gained absolute power by pairing with oil. It became possible to create money with just paper and ink.
The issue is that the U.S. has abused the power of the absolute ring for the past 50 years. The world realized that even the dollar could fall prey to inflation if overprinted, with the national debt reaching $33 trillion. As the Chinese yuan threatens the dollar’s hegemony, aging past 50, a struggle between the eagle and the panda unfolds.
Bitcoin, which emerged as an alternative to the dollar after the 2008 global financial crisis, is creating another front as it gains recognition as an asset. The dollar is fighting two wars against the yuan, trying to snatch the absolute ring, and Bitcoin, trying to destroy the ring itself. The main characters in this currency war include former U.S. President Donald Trump, current President Joe Biden, Chinese President Xi Jinping, Saudi Arabian Crown Prince Mohammed bin Salman, Indian Prime Minister Narendra Modi, and Russian President Vladimir Putin.
On another battlefield, Elon Musk, CEO of Tesla, is waging an entirely different currency war. This is unprecedented in history.
From Petrodollar to ElectroBit
Elon Musk’s competitive edge is cost reduction through innovation. Despite the electric vehicle industry entering price competition below production costs, Tesla maintains a double-digit operating profit margin. A winner-takes-all phase could soon arrive. Musk’s potential monopoly of the power supply network is also due to cost competitiveness. The basic strategy of monopoly building is to supply better products at lower prices.
Musk has long been interested in the payment market for cost reduction. Musk plans to reduce the production, storage, and distribution of electricity and payment fees to the lowest or almost zero level. His likely solution is Bitcoin. Bitcoin is a digital currency system for peer-to-peer transactions. It can significantly reduce global payment costs without the intervention of a third party like a bank or international remittance network. A world where Musk monopolizes power supply and accepts Bitcoin as payment, or the ElectroBit system, is Musk’s vision for the future.
A world where Musk monopolizes power supply and accepts Bitcoin as payment, or the ElectroBit system, is Musk’s vision for the future.
The combination of electricity and Bitcoin reminds us of the Petrodollar.
1971, the dollar broke free from the gold standard with the Nixon Shock. Then, during the first oil shock in 1974, the Nixon administration established the Petrodollar system in exchange for guaranteeing Saudi Arabia’s security. By only making oil transactions in dollars, the dollar regained its power as the reserve currency.
The Achilles’ heel of the Petrodollar system is that it is built on the foundation of U.S. fiscal and trade deficits. In simple terms, the Petrodollar system is a cruise ship floating on U.S. debt. The luxury liner sinks when the debt exceeds its limit.
The Bitcoin camp is one of the forces watching the collapse of the Petrodollar system closely. Although there is no specific entity, Bitcoin threatens the reserve currency’s hegemony. Therefore, Bitcoin is the number one containment target for the U.S. government and governments worldwide, or more precisely, central banks. Imagine a government without currency sovereignty.
Some IT gurus threaten the U.S. Federal Reserve’s currency sovereignty. A notable figure is Mark Zuckerberg of Facebook. In 2019, Zuckerberg announced plans to issue Libra, a digital coin that allows asset movement on Facebook and Instagram. Facebook, including Instagram, has 2.9 billion monthly active users. The possibility of asset movement among 2.9 billion people through Libra can only be a thorn in the side of the governments of reserve currency countries.
The U.S. government and Congress harshly criticized Zuckerberg, claiming that Libra could disrupt international financial order and be abused for money laundering. Governments worldwide have conducted intensive tax investigations against Zuckerberg and Facebook executives related to Libra, which are still ongoing as of May 2023. Zuckerberg suddenly stepped back, expressing a reserved stance on the Libra issuance plan.
Musk seems to have a stronger spirit than Zuckerberg. After announcing on Twitter in 2021 that Tesla had purchased $1 billion worth of Bitcoin, Musk has frequently commented on digital coins. His actions have influenced the prices of Bitcoin and Dogecoin several times.
The Petrodollar system is an artificial system created by making only dollars available to pay for essential resources for human survival. It is not a product of collective human intelligence but a massive device designed and implemented by former U.S. Secretary of State Henry Kissinger.
In this regard, it is necessary to pay attention to the actions of X, the former Twitter, which Musk acquired. Having acquired X, which has 450 million users worldwide, Musk has mentioned cryptocurrency payments. X received a license for cryptocurrency payments in August 2023. It is possible to store, transfer, exchange digital assets, or hold other people’s assets.
There is interest in the industry about what X will choose as its payment cryptocurrency. If Bitcoin is adopted, some experts point to it as a factor that could cause a surge in Bitcoin prices in conjunction with the 2024 halving. When the era comes when power demand is more than double as Musk envisions, the ElectroBit era may come in the near future.
If Musk produces electricity at a revolutionary low price, distributes it to households worldwide, and only accepts specific cryptocurrency for payment, the ElectroBit system would replace the Petrodollar system.
Only Musk himself knows whether he intended the ElectroBit system from the beginning or if the ElectroBit system is the result hidden behind the blueprint he drew. What is certain is that he has a high chance of becoming the leading player in collapsing the currency hegemony that the dollar has enjoyed for the past century, regardless of his will.
By. Kim Chang Ik
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