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Africa faced with the american “Dollar”

Several entities from countries like China, Russia, India, Nigeria, and Algeria are currently abandoning the US dollar in international trade agreements. The invisible "conflict" between China and the West is pushing more and more countries to want to trade in their own currency. Brazil, the largest country in the Western Hemisphere, recently concluded a trade agreement with China. They will now trade in their own currency. A secondary economy is being created in the world completely independent of the USA.

July 7, 2023
8 min read

Image credit © by Getty Image, Former South African President Thabo Mbeki.

Africa American Dollar BRICS BRICS Countries The CFA Franc FCFA ECOWAS CEMAC BCEAO BEAC ECO AU African Union Economy

Since 1944, the privileged position of the dollar has given the United States disproportionate influence over other economies including countries in Africa, Asia, South America, and the Middle East. The dollar as the world's reserve currency is now coming to an end. According to International Monetary Fund (IMF) data on the currency composition of official foreign exchange reserves, the dollar's share of global foreign exchange reserves has already fallen sharply. At the end of 2022, the American currency accounted for 58% of foreign exchange reserves, compared to 71% in 1999. Interestingly, countries have not adopted the British pound sterling, the euro, or the Japanese yen as replacements, (1 /4) a quarter of transactions moved to the Chinese renminbi (yuan) – and the remaining (3/4) three-quarters to the currencies of smaller countries that had had a limited role in the past as currencies reserve.

In 2014, the BRICS countries (Brazil, Russia, India, China, and South Africa) began to formulate a plan to detach from the US dollar, setting up a currency that could be used between BRICS countries. In March 2023, the Russian President said "about (2/3) two-thirds of trade between Russia and China already uses the yuan and the Russian ruble and that he favors the use of the yuan when exchanges with Asian, African, and Latin American countries. Note that China and Brazil have signed a historic agreement between them to use the yuan for mutual trade.

Right now, many countries are looking at different alternatives as the rising value of the US dollar is crippling their economies and contributing to the rising cost of living, the Indian rupee has fallen almost 10% in 2023 against the dollar, the pound Egyptian lira by 20% and the lira in Turkey (where prices more than doubled) fell by 28%.

Image credit © by Alamy, 1 dollar banknote, President George Washington, USA, 2009.

The cost of currency convertibility with the US dollar in trade between African countries is close to $5 billion a year and the declining role of the US dollar in international trade has encouraged African nations to take steps to break free. of American influence by strengthening their own national currencies or working on new currencies that would be used for trade on the continent. For example, the East African Community (EAC), comprising Burundi, Kenya, Rwanda, Tanzania, Uganda, and South Sudan, is working on a regional currency called the East African Shilling. (agriculture being the main driver of these economies with the service sector contributing the most to GDP). The Southern African Development Community (SADC) is also considering creating a common currency. SADC brings together sixteen countries in Southern Africa and the Indian Ocean: South Africa, Angola, Botswana, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Democratic Republic of Congo, Seychelles, Swaziland, Tanzania, Zambia, Zimbabwe, Comoros. 5 of them are French-speaking.

In 2021, the African Continental Free Trade Area (ZLECAF / AFCFTA) came into operation, and more than 54 African countries have signed this agreement. (ZLECAF/ AFCFTA), called on members to trade in local African currencies. Speaking in late March, an official from (ZLECAF/AFCFTA) said the bloc was working on a pan-African payment and settlement system to allow local currencies to be used in trade between countries on the continent. Due to the recent euro/dollar crisis which affected the CFA Franc, the CEMAC bloc, which counts among its members Gabon, Cameroon, Central African Republic, Chad, Republic of Congo, and Equatorial Guinea, announced that would stop using the CFA franc (FCFA), opting for a complete name change.

Cross-border trade between the countries of the Economic Community of West African States (ECOWAS/ECOWAS) is already done through the use of local currencies. On December 21, 2019, the Heads of State of the 15 countries of the (ECOWAS/ECOWAS) region adopted the symbol of ECO – “EC” for the future currency of West Africa. The launch of this new single currency is scheduled for 2027 (On May 20, 2020, the French Council of Ministers adopted a bill that ratifies the end of the CFA franc. The Central Bank of West African States (BCEAO) will no longer be obliged to deposit half of its foreign exchange reserves with the French Treasury).

Other regional blocs, including the East African Community, are in talks with the African Export-Import Bank to join this movement. The Central African Economic and Monetary Community (CEMAC), made up of six countries, is also planning to join West Africa in creating a common regional currency (ECO).

In 2013, African leaders, under the auspices of the African Union (AU), agreed on a plan to address the myriad challenges facing the continent. This plan has been dubbed "Agenda 2063", it sets out a vision, among other things, to end wars on the continent, develop infrastructure and allow freedom of movement on the continent.

The Flagship Projects of Agenda 2063 are:

  • Connect all African capitals and economic centers with a network of high-speed trains.

  • Accelerate intra-African trade and strengthen Africa's trading position in the global market.

  • The development of the Inga dam in DR Congo to produce 43,200 MW of electricity.

  • Remove restrictions on Africans to travel, work and live on their own continent.

  • End all wars, civil conflicts, gender-based violence, violent conflicts and prevent genocide.

  • Creation of a single African air transport market (Saatm).

  • Strengthen the African space industry.

  • Create an African virtual and electronic university.

  • Develop an African encyclopedia (encyclopedia Africana) to provide an authoritative resource on the authentic history of Africa and African life.

In 2023, following a growing shortage of dollars in the country, Kenya signed an agreement with three international oil companies to allow them to buy oil in Kenyan shillings rather than US dollars. This saved the country $500 million (KSh 66.8 billion) every month by purchasing fuel in this way.

To promote trade with African states without resorting to dollars or euros, Iran has proposed a common bank. In 2022, trade between Iran and Africa amounted to nearly $1 billion. In the same vein, the Reserve Bank of India (RBI) in 2022, granted 60 authorizations and invited the central banks of 18 countries including Botswana, Fiji, Germany, Guyana, Israel, Kenya, Malaysia, Mauritius, Myanmar, New Zealand, Oman, Russia, Seychelles, Singapore, Sri Lanka, Tanzania, Uganda, and United Kingdom to open Vostro Rupee accounts (Special Vostro Rupee Accounts – SVRA), in order to transact with them in Indian rupees instead of US dollars.

Image credit © by Alamy, African flags and Continent map.

Although many African countries are well on their way to abandoning the dollar, they have some catching up to do with other nations that are further along this path. In March 2023, Brazil, the largest economy in South America and the economic giant that is China will now trade in their own currencies: in Brazilian real and in yuan. More room for the dollar. During the same period, the central banks of the Association of Southeast Asian Nations (ASEAN), including Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam, discussed ditching the US dollar, euro, yen and pound, and using local currencies to trade with each other (according to the IMF, the combined GDP of ASEAN is about $3.9 trillion,).

The Middle East is following suit, with Saudi Arabia in early 2023 advising the country, an American ally, and the world's largest oil exporter, that it was open to talks about trading currencies other than the American dollar. France, too, could distance itself from the dollar (in April 2023, the French president, following his meeting with Chinese leader Xi Jinping, declared that Europe must reduce its dependence on what he called "the extraterritoriality of the American dollar".

In November 2022, the government of Ghana declared that the country was at high risk of debt distress because its currency, the cedi, had depreciated against the US dollar, increasing its external debt by $6 billion this year alone. Ghana is working on a new policy, to buy oil with gold instead of US dollars as part of government measures to strengthen the cedi (Ghana would buy gold locally with cedis by the intermediary of the Bank of Ghana, then would exchange the gold against fuel (oil) in the form of barter with the United Arab Emirates for example).

There are still far too many hurdles for a cryptocurrency to become the global currency soon, but in many countries, especially African and South American countries, cryptocurrencies are a real contender for both the dollar and local currencies. In Africa, for example, 1.4 million consumers use Yellow Card which offers a similar experience to Block's Cash App. It is the largest centralized cryptocurrency exchange in Africa and is a lifeline for many who do not have access to other acceptable currencies to trade with.

Yellow Card customers can receive cryptocurrency from anywhere in the world and only pay network fees between five cents and $1, making it a credible competitor to Western Union or MoneyGram. This is a huge help for many Africans, who depend on money sent from abroad.

The latest data from the World Bank shows that in sub-Saharan Africa, up to 65% of adults do not have access to a formal bank.

Meanwhile, it is more expensive to send money to countries in this region than to any other part of the world. On average, it costs $15.60 (7.8%) to send $200 to or from Africa using traditional banking and can be as high as $38 or 19% in some countries.

Image credit © by Leclerc Consulting Group, Africa faced with the american Dollar.

In April 2023, former South African President Thabo Mbeki said many countries are considering alternatives to the dollar to avoid the impact of US sanctions, a shift in historical perspective driven by a global desire not to be subject to power. America through its currency.

Also, the recent economic upheavals have reinforced criticism of the role of the dollar. Actions taken by the Fed to raise interest rates to keep inflation under control led to the US$ back strengthening against emerging market currencies. This presents a dual problem for global economies that hold and incur dollar-denominated debt. Higher US interest rates tend to increase the relative value of the dollar in foreign exchange markets. The cost of countries' debts increases as more local currency is needed to pay off each dollar of debt. This traps countries in a loop of financial obligation.

At the same time, shifts in geopolitical alliances are gaining momentum as the rivalry between the United States and China intensifies. A series of moves by the BRICS bloc, Brazil, Russia, India, China, and South Africa are challenging the dominance of the US dollar. The BRICS members, with a trade surplus of $387 billion in 2022, the accumulation of substantial gold reserves, and representing 40% of the world's population and a third of the world's economic output believe that a new currency could rationalize the transactions, currently hampered by currency conversions and associated costs, and as such would lead to a gradual decline in the dominance of the dollar.

It seems that we are heading towards a multipolar reserve currency situation where national currencies, new currencies, and cryptocurrencies will take precedence against the dollar. On July 22, 1944, in the economic agreements that shaped the outlines of the post-World War II international financial system, Africa was largely ignored. (60) Sixty years later, while the Western world is facing demographic decline, Africa is booming, brimming with a young and increasingly tech-savvy population, and is finally taking center stage internationally.



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