Why it is not Advantageous to Use the US Dollar for International Trade in Africa
As the global economy sinks into another period of crisis, one indicator is shooting upwards: the value of the US dollar. With about 50% of all international trade invoiced in dollars, a stronger greenback hurts consumers across the world – including in Africa. The worst-hit currency on the continent is the Ghanaian cedi, which has lost 40% of its value against the dollar so far in 2022, according to data on indicative rates supplied by Refinitiv. The SA rand is another major currency under pressure amid faltering investor confidence. The rand has been on a declining trend against the US dollar for several years and has depreciated by 9% so far in 2022. African countries that lack a strong commodity export base are in an exposed position. The Kenyan shilling, for example, has seen its indicative value decline by 6% so far this year. Nigeria’s complicated system of multiple exchange rates makes it difficult for businesses and individuals to access dollars, particularly in times of economic stress. Of all Africa’s major currencies, only the Zambian kwacha has had a good year against the dollar, gaining 6% so far in 2022. For African policymakers seeking to manage currency risks, there is no easy way out of the cycle of crisis.
The new payment systems launched this year – the PAPSS, which is piloting in West Africa, and the TCIB in the SADC countries – are both designed to ensure that payments can be made directly between African national currencies, thus sidestepping the US dollar (or British pound or Euro).
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