21st August, 2023
Business has vanished at Kingsley Odafe’s clothing shop in Nigeria’s capital, forcing him to lay off three employees.
One culprit for his troubles stands out: The US dollar’s strength against the Nigerian currency, the naira, has pushed the price of garments and other foreign goods beyond the reach of local consumers.
A bag of imported clothes costs three times what it did two years ago. The price these days is running around NGN350,000 (USD450).
“There are no sales anymore because people have to eat first before thinking of buying clothes,” Odafe said.
Across the developing world, many countries are fed up with the United States’ (US) dominance of the global financial system, especially the power of the dollar. They will air their grievances next week as the BRICS bloc meets with other emerging market countries in Johannesburg, South Africa.
But griping about the King Dollar is easier than actually deposing the de facto world currency.
The dollar is by far the most-used currency in global business and has shrugged off past challenges to its preeminence.
Despite repeated talk of the BRICS countries rolling out their own currencies, no concrete proposals have emerged in the run-up to the summit.
Emerging economies have, however, discussed expanding trade in their own currencies to reduce their reliance on the buck.
At a meeting of BRICS foreign ministers in June, South Africa’s Naledi Pandor said the bloc’s New Development Bank will seek alternatives “to the current internationally traded currencies—a euphemism for the dollar.
In 2015, the BRICS countries launched the New Development Bank, an alternative to the US- and European-dominated International Monetary Fund and World Bank.
“Developing nations are itching to loosen the grip of Western dominance and open the door to a new world order where the East commands equal, if not greater, influence,” said Ugandan political activist Martin Ssempa.
The World Bank announced this month that it was halting new lending to Uganda.
Critics in the developing world are especially uneasy about America’s willingness to use the dollar’s global influence to impose financial sanctions against adversaries.
They also complain that fluctuations in the dollar can destabilise their economies.
A rising dollar, for instance, can cause chaos abroad by drawing investment out of other countries.
It also increases the cost of repaying loans denominated in dollars and buying imported products, which are often priced in dollars.
Kenyan President William Ruto has grumbled this year about Africa’s dependence on the dollar and the economic fallout from its ups and downs, while the Kenyan shilling plunges in value.
He’s urged African leaders to join a fledgling pan-African payments system that uses local currencies in a push to encourage more trade.
“How is US dollars part of the trade between Djibouti and Kenya? Why?” he asked at a meeting, to applause.
Brazilian President Luiz Inácio Lula da Silva has supported a common currency for commerce within the South American bloc Mercosur and for trade among BRICS nations.
“Why does Brazil need the dollar to trade with China or Argentina? We can trade in our currency,” he told reporters this month.
But if the dollar’s drawbacks are easily apparent, the alternatives to it are not.
“At the end of the day, if you want to keep your reserve safe, you’ve got to put it in the dollar,” said senior research fellow at the University of Pretoria and lawyer specialising in international finance, Daniel Bradlow.
“You’re going to need to borrow in dollars. Everybody can see all the problems with doing this, but if there was an alternative, people would use it.”
As it stands, 96 percent of trade in the Americas from 1999 to 2019 was invoiced in dollars, 74 percent of trade in Asia, and 79 percent everywhere else, outside of Europe, which has the euro, according to calculations by US Federal Reserve researchers.
Still, the dollar’s hold on global commerce has loosened somewhat in recent years as banks, businesses, and investors have turned to the euro and China’s yuan.
But 24 years after the euro was introduced, the world’s number two currency still does not rival the dollar for international gravitas. The dollar is used in three times as many foreign exchange transactions as the euro, Harvard University economist Jeffrey Frankel said in a study last month.
And the yuan is limited by Beijing’s refusal to let the currency trade freely on world markets.
“None of the alternatives to the dollar managed to get to the dominance level,” said senior fellow at Tufts University’s Fletcher School of Global Affairs Mihaela Papa.
“So the idea that now, overnight, you will have a new BRICS currency that would cause a major upheaval—it takes time, it takes trust… I see this path as very long.” The dollar still has its supporters. In Argentina, Javier Milei, who emerged from primary voting last week as the front-running presidential candidate in October’s general election, is calling for the dollar to replace the country’s embattled peso.
In Zimbabwe, Lovemore Mutenha’s store collapsed when hyperinflation hit in 2008.
He only managed to resuscitate the business when the country abandoned the local currency for a basket of currencies dominated by the dollar.
“The US dollar has given us our lives back. We can’t do without it,” Mutenha, 49, said in the working-class suburb of Warren Park near the capital, Harare.
“How can one budget with the Zimbabwe dollar that is always changing in value? It is not stable, and we have been burnt before.”
