A customer counts US dollar money at a bank in Cairo, Egypt, March 10, 2016. (File photo: Reuters)
Kingsley Odafe’s clothing store in the Nigerian capital has been forced to lay off three workers after a downturn.
One of the culprits of his troubles stands out. The strength of the US dollar against Nigeria’s currency, the naira, has pushed the prices of clothing and other foreign goods out of reach for domestic consumers. The price of a bag of imported clothing is three times what it was two years ago. The recent price is around 350,000 naira, or $450.
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“There are no more sales because people have to eat first before buying clothes,” Odafe said.
Across the developing world, many are fed up with US dominance of the global financial system, especially the power of the dollar.
Next week, when the BRICS bloc of Brazil, Russia, India, China and South Africa meet in Johannesburg, South Africa, with other emerging markets, the two countries are expected to voice their displeasure.
But complaining about the King Dollar is easier than actually doing away with the de facto global currency.
The dollar is by far the most used currency in global business and has overcome past challenges to maintain its prominence.
Despite repeated discussions about the BRICS countries adopting their own currencies, no concrete proposals have been made for the summit, which starts on Tuesday. However, emerging economies are discussing expanding trade in their own currencies to reduce their dependence on the dollar.
At the BRICS Foreign Ministers’ Meeting in June, South Africa’s Naledi Pandor said the BRICS New Development Bank would seek alternatives to “currencies currently traded internationally”, a euphemism for the dollar. . Mr. Pandor sat alongside Russia’s Sergey Lavrov and China’s Ma Zhaoxu, who are particularly keen to undermine US international financial clout.
The BRICS grouping dates back to 2009. Originally just he was BRIC, a term coined by Goldman Sachs economist Jim O’Neill to refer to the emerging economies of Brazil, Russia, India and China. South Africa joined in 2010 and added an ‘S’ to its name. More than 20 countries have expressed interest in joining BRICS, including Saudi Arabia, Iran and Venezuela.
In 2015, the BRICS countries launched a new development bank to replace the US- and European-dominated International Monetary Fund and World Bank.
“Developing countries are loosening the grip of Western dominance and opening the door to a new world order in which the East wields equal or greater influence,” said Ugandan political activist Martin Sempa. Ta.
Developing-world critics are particularly concerned about the US’ willingness to use the dollar’s global influence to impose financial sanctions on adversaries, as it did with Russia after last year’s invasion of Ukraine. I’m holding
They also complain that dollar fluctuations can destabilize the economy. For example, a rising dollar could cause turmoil abroad by calling in investments from other countries. It also increases the cost of repaying dollar-denominated loans and the cost of purchasing imported goods, which are often priced in dollars.
The Kenyan shilling has plummeted in value this year after Kenyan President William Ruto complained about Africa’s dependence on the dollar and the economic impact of its ups and downs. He called on African leaders to join an emerging pan-African payment system that uses local currencies to facilitate trade.
“How is the US dollar involved in trade between Djibouti and Kenya? Why?” he applauded at the meeting.
Brazilian President Luis Inacio Lula da Silva supports a common currency for commerce within the Mercosur region of South America and trade between the BRICS countries.
“Why does Brazil need dollars to trade with China and Argentina? We can trade in our own currency,” he told reporters earlier this month.
But if the dollar’s shortcomings are readily apparent, its alternatives are not.
“At the end of the day, if you want to keep foreign exchange reserves safe, you have to convert them into dollars,” said Daniel Bradlow, a senior fellow at the University of Pretoria and a lawyer specializing in international finance. “We need to borrow in dollars. We can all see that there are all sorts of problems with doing this, but if there was an alternative, people would use it.”
Researchers at the US Federal Reserve have calculated that as it stands, between 1999 and 2019, 96% of the Americas’ trade was billed in dollars, 74% of Asia’s trade, and euro-bearing Europe. excluding the rest of the world, 79% were billed in dollars.
Still, the dollar’s dominance over global commerce has weakened somewhat in recent years as banks, businesses and investors turned to the euro and the Chinese yuan.
But even 24 years after the introduction of the euro, the world’s second-largest currency still cannot match the dollar in terms of international gravity. The dollar is used in foreign exchange trading three times more than the euro, Harvard University economist Jeffrey Frankel said in his paper. study last month.
And the renminbi is restricted by the Chinese government’s refusal to allow the currency to trade freely in global markets.
“None of the alternatives to the dollar have been able to reach dominance levels,” said Michaela Papa, a senior fellow in international affairs at Tufts University’s Fletcher School. “So now, the idea of having a new BRICS currency[to cause a big cataclysm]overnight takes time and requires trust…I see this road to be very long. ”
The dollar still has its supporters. In Argentina, Javier Milay, who emerged as the front-runner for president in October’s general election after winning Monday’s primary vote, is seeking a dollar to replace the country’s struggling peso.
In Zimbabwe, hyperinflation hit in 2008 and the Lovemore Mutenha liquor store went bankrupt. He finally revived the shop when Zimbabwe abandoned its national currency and the dollar moved into the mainstream currency basket.
“The US dollar has given us life back. “How do you budget with the Zimbabwean dollar, whose value fluctuates all the time? It’s not stable, and we’ve been burned before.”
In 2019, the government reintroduced Zimbabwe’s currency, banning the use of foreign currencies in domestic transactions.
However, the revamped Zimbabwean dollar underperformed. The US dollar continued to trade on the black market, but the government lifted the ban. Currently, 80% of domestic transactions are conducted in USD.
Finance Minister Mutri Nkubu often pleads with the public to accept the local currency.
But even government officials are demanding payments in US dollars, and nearly all service providers claim they only accept US dollars.
Harare economic analyst Prosper Chimbala said the US dollar “always has a stabilizing effect.” But Zimbabwe’s economy, with its low industry, low investment, low exports and high debt, cannot raise enough dollars to meet its daily commercial needs.
This led to a niche business on the streets of the capital. Vendors repair worn or shredded $1 bills for a small fee.
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