In the bustling city of Abuja, Nigeria, a sense of desolation has settled upon Kingsley Odafe’s clothing shop, as the once thriving business has been engulfed by an alarming disappearance of customers.
Such a dire situation has compelled Odafe to make the heart-wrenching decision of laying off three of his dedicated employees.
Amidst this disheartening turn of events, one particular culprit emerges, casting a shadow of adversity over the local economy: the formidable strength of the United States dollar in comparison to the Nigerian currency, the naira.
This unwelcome disparity in exchange rates has resulted in an exorbitant surge in the prices of garments and other imported goods, rendering them far beyond the financial reach of the average Nigerian consumer.
In a dismaying illustration of this predicament, the cost of a single bag of imported clothes has skyrocketed to three times its value merely two years ago.
Presently, the staggering price tag attached to such goods hovers around a daunting 350,000 naira, equivalent to approximately $450.
Odafe laments the devastating impact of this economic upheaval, expressing his profound concern that the dwindling purchasing power of the local populace has undermined the very foundation of his business.
With a heavy heart, he observes the disheartening reality that people are now prioritizing their basic sustenance over the luxury of purchasing clothes, leaving him to grapple with the painful reality of dwindling sales and an uncertain future.
In the realm of international finance, a growing sentiment of discontent has been brewing among numerous developing nations towards the overwhelming dominance of the United States in the global financial system, particularly with regards to the unparalleled influence wielded by the US dollar.
This collective frustration is set to be expressed in the forthcoming week, as the BRICS bloc, comprising Brazil, Russia, India, China, and South Africa, convenes in Johannesburg, South Africa, alongside other emerging market economies.
This highly anticipated meeting provides an opportune platform for these nations to voice their grievances and seek alternatives to the prevailing financial order, which they perceive as unfairly favoring the United States.
The discussions held during this gathering are poised to shape the future trajectory of the global financial landscape, potentially paving the way for a more diversified and inclusive system that better reflects the interests and aspirations of the developing world.
However, merely complaining about the dominance of the US dollar is a much simpler task than actually dethroning it as the de facto global currency.
The dollar holds an overwhelming position as the most widely-used currency in global business, and it has managed to withstand previous challenges to its preeminence.
Despite ongoing discussions about the possibility of the BRICS countries introducing their own currency, no concrete proposals have been put forth in the lead-up to the upcoming summit scheduled to commence on Tuesday.
Nevertheless, emerging economies have engaged in talks about expanding trade using their own currencies as a means to reduce their dependence on the US dollar.
During a meeting of BRICS foreign ministers in June, South Africa’s Naledi Pandor hinted at the New Development Bank’s intention to explore alternatives to the current internationally traded currencies, which is essentially a euphemism for the US dollar.
Pandor made this statement while sitting alongside Russia’s Sergey Lavrov and China’s Ma Zhaoxu, representatives of two countries that are particularly keen on diminishing America’s influence in the international financial realm.
The BRICS grouping, which originated in 2009 as BRIC, was initially a term coined by Goldman Sachs economist Jim O’Neill to describe the emerging economies of Brazil, Russia, India, and China.
However, in 2010, South Africa joined the group, resulting in the addition of the letter “S” to the name. The appeal of the BRICS alliance has been significant, with over 20 countries expressing their interest in joining, including Saudi Arabia, Iran, and Venezuela.
In an effort to challenge the dominance of Western institutions such as the International Monetary Fund and World Bank, the BRICS countries launched the New Development Bank in 2015.
This alternative institution aimed to provide financial support to developing nations and reduce reliance on the US and Europe.
The desire to break free from Western dominance and establish a new world order, where the East holds equal or even greater influence, resonates strongly among developing nations.
This sentiment is exemplified by Martin Ssempa, a Ugandan political activist who defended a law that Uganda passed, prescribing the death penalty for certain homosexual acts.
The controversial legislation prompted the World Bank to announce a halt in new lending to Uganda. The developing world is particularly concerned about the US’s use of the dollar’s global influence to impose financial sanctions on adversaries, as seen in the case of Russia following its invasion of Ukraine last year.
Critics argue that such actions further exacerbate the power imbalance between the West and the rest of the world.
In addition to their concerns about the destabilizing effects of fluctuations in the dollar on their economies, there are also complaints from various leaders around the world regarding the dependency on the dollar and the negative economic consequences that arise from its unpredictable ups and downs.
For instance, Kenyan President William Ruto has expressed his dissatisfaction this year with Africa’s reliance on the dollar, particularly as the Kenyan shilling continues to plummet in value.
Ruto has called upon African leaders to unite and embrace a newly established pan-African payments system that utilizes local currencies, with the aim of promoting more trade within the continent.
During a meeting, Ruto posed the question of why U.S. dollars are necessary for trade between Djibouti and Kenya, which was met with applause from the audience.
Similarly, Brazilian President Luiz Inácio Lula da Silva has voiced his support for the adoption of a common currency for commerce within the South American bloc known as Mercosur, as well as for trade among BRICS nations.
Lula da Silva questioned the need for Brazil to rely on the dollar when engaging in trade with countries such as China or Argentina, asserting that they could conduct trade using their own respective currencies. This sentiment was shared with reporters earlier this month.
These statements from Ruto and Lula da Silva highlight the growing dissatisfaction among leaders in various regions regarding the dominance of the dollar in international trade.
They argue that relying on the dollar not only exposes their economies to unnecessary risks and volatility but also incurs additional costs in terms of loan repayments and the purchase of imported goods, which are often priced in dollars.
The push for alternative payment systems and the desire to conduct trade in local currencies reflect a broader sentiment among these leaders to reduce their dependence on the dollar.
By promoting the use of local currencies for trade, they hope to mitigate the adverse effects of dollar fluctuations and foster greater stability and economic growth within their respective regions.
However, it is important to note that transitioning away from the dollar as the dominant global currency would not be without challenges.
The dollar’s status as the world’s reserve currency has been deeply entrenched for decades, and any significant shift would require careful coordination and cooperation among countries.
Additionally, the dollar’s widespread acceptance and liquidity make it a convenient medium of exchange for international trade.
Nevertheless, the calls for alternative payment systems and the exploration of regional currencies for trade underscore the desire among these leaders to assert greater control over their economies and reduce their vulnerability to external factors.
As the global economic landscape continues to evolve, it remains to be seen whether these calls for change will gain traction and lead to a more diversified and multipolar international monetary system.
The dollar’s drawbacks may be readily apparent to many, but finding viable alternatives to this global reserve currency has proven to be a challenging endeavor.
According to Daniel Bradlow, a senior research fellow at the University of Pretoria and an expert in international finance law, if one desires to safeguard their reserves, they inevitably find themselves relying on the dollar.
Borrowing in dollars becomes a necessity, despite the widespread recognition of the inherent problems associated with such a practice.
The statistics speak for themselves: from 1999 to 2019, a staggering 96% of trade in the Americas was denominated in dollars, with 74% in Asia and 79% elsewhere, excluding Europe, which has the euro as its own currency.
These figures were calculated by researchers at the U.S. Federal Reserve. While it is true that the dollar’s grip on global commerce has somewhat weakened in recent years, with the euro and China’s yuan gaining traction among banks, businesses, and investors, it is still far from being dethroned.
Even after 24 years since its introduction, the euro, the world’s second most prominent currency, does not come close to rivaling the dollar’s international gravitas.
In fact, Harvard University economist Jeffrey Frankel revealed in a recent study that the dollar is involved in three times as many foreign-exchange transactions as the euro.
The dominance of the yuan in global markets is hindered by Beijing’s reluctance to allow the currency to trade freely.
According to Mihaela Papa, a senior fellow at Tufts University’s Fletcher School of global affairs, none of the alternatives to the dollar have been able to reach the same level of dominance.
She believes that the idea of a new BRICS currency causing a major upheaval overnight is unrealistic, as it requires time and trust to establish. Despite these challenges, the dollar still has its proponents.
In Argentina, Javier Milei, the front-running presidential candidate, is advocating for the dollar to replace the struggling peso.
Similarly, in Zimbabwe, the dollar has played a crucial role in reviving businesses during times of hyperinflation. Lovemore Mutenha, a store owner, attests to the stability and reliability of the dollar, emphasizing that the local currency is volatile and unpredictable.
Although the Zimbabwean government attempted to reintroduce its currency, it failed to gain traction, and the majority of transactions are still conducted in U.S. dollars.
Even government workers prefer to be paid in dollars due to the widespread acceptance of the currency. Despite pleas from the Finance Minister, the lack of industry, investment, exports, and high debts in Zimbabwe make it difficult to attract sufficient dollars for everyday commerce.
Consequently, there is a burgeoning business in the capital where vendors repair worn-out or shredded one-dollar notes for a small fee.