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 U.S. 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 350,000 naira, or $450.
“There are no sales anymore because people have to eat first before thinking of buying clothes,” Odafe said.
For decades, defying predictions of its demise, the U.S. dollar has been the world’s dominant currency. Nearly 60% of the world’s foreign exchange reserves are in dollars, but that share has been falling gradually, and the evolution of markets and technology have weakened the dollar’s market share in global payments. Is the U.S. dollar’s primacy at risk? Will the rise of central bank digital currencies, cryptocurrencies, and other innovations quicken the dollar’s decline? Will U.S. sanctions on Russia’s reserves lead other countries to put their reserves in other currencies? And, importantly, what might be the macroeconomic impact on the U.S. if the dollar were to lose substantial market share?
Across the developing world, many countries are fed up with America’s dominance of the global financial system — especially the power of the dollar. They will air their grievances next week as the BRICS bloc of Brazil, Russia, India, China and South Africa meet with other emerging market countries in Johannesburg, South Africa.
But complaining about the dollar is easier than 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 currency, no concrete proposals have emerged in the run-up to the summit starting Tuesday. 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. Pandor was sitting alongside Russia’s Sergey Lavrov and China’s Ma Zhaoxu — representatives of two countries that are especially eager to weaken America’s international financial clout.
BRICS dates to 2009 and the four rising economies of Brazil, Russia, India and China. South Africa joined in 2010, adding the “S” to the name. More than 20 countries — including Saudi Arabia, Iran and Venezuela — have expressed interest in joining BRICS.
In 2015, the BRICS countries launched the New Development Bank — an alternative to the U.S. and European-dominated International Monetary Fund and World Bank.
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 — as it did to Russia after the invasion of Ukraine last year.
They also complain that fluctuations in the dollar can destabilize 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 U.S. 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.
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 Daniel Bradlow, a senior research fellow at the University of Pretoria and a lawyer specializing in international finance. “You’re going to need to borrow in dollars.
As it stands, 96% of trade in the Americas from 1999 to 2019 was invoiced in dollars, 74% of trade in Asia and 79% everywhere else, outside of Europe, which has the euro, according to calculations by U.S. 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 No. 2 currency 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 in world markets.
The dollar still has its supporters. In Argentina, Javier Milei, who emerged from primary voting Monday 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 liquor 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 U.S. dollar has given us our life back. We can’t do without it,” Mutenha, 49, said in the working-class suburb of Warren Park near the capital, Harare.
In 2019, the government reintroduced the Zimbabwean currency and banned foreign currencies in local transactions.
But the revamped Zimbabwe dollar floundered. U.S. dollars kept trading in the black market, and the government lifted the ban. Now, 80% of transactions in the country are in U.S. dollars.
Finance Minister Mthuli Ncube often pleads with people to embrace the local currency.
But even government workers clamor to be paid in U.S. dollars, arguing that almost all service providers accept only the greenback.
Prosper Chitambara, an economic analyst in Harare, said the U.S. dollar “has always had a stabilizing effect.” But Zimbabwe’s economy, which has little industry, low investment, few exports and high debts, can’t attract enough dollars to meet the needs of everyday commerce.
It has led to a niche business on the streets of the capital: Vendors mend worn out or shredded $1 notes for a small fee.
