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Why the U.S. Dollar Still Dominates Global Trade — and What Africa Can Learn from Asia’s Playbook

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When Brazilian President Luiz Inácio Lula da Silva asked in Shanghai on April 13, 2023, “Why must global trade rely on the dollar?”, he voiced a frustration shared by many emerging economies. His question — “Who decided the dollar’s post-gold-standard supremacy?” — continues to reverberate across global finance debates.

Yet, nearly two years later, despite the political momentum around “de-dollarization,” the economic reality remains clear: the dollar’s dominance is intact.


The Enduring Power of the Dollar

According to economist and author Paul Blustein in his forthcoming book King Dollar (2025), roughly 60 percent of global foreign exchange reserves are held in dollars, primarily in U.S. Treasury securities. Beyond that, three-quarters of global trade outside Europe is invoiced in dollars, and in the Western Hemisphere, the figure rises to 96 percent.

The dollar also underpins nearly 60 percent of cross-border loans and deposits, 70 percent of international bonds, and features in 90 percent of all currency trades. This means that even when Nigerian businesses trade for Chilean pesos, transactions typically pass through the dollar as an intermediary currency.

The Bank for International Settlements (BIS) reports that daily foreign exchange trading reached $9.6 trillion in April 2025, with the dollar involved in 89 percent of those transactions.

The U.S. Treasury market — valued at around $18 trillion, with $600 billion traded daily — remains the world’s deepest and most liquid capital market. That liquidity, combined with America’s strong property rights and contract enforcement, makes the dollar a global “safe haven,” particularly during crises.

As David Mulford, former adviser to the Saudi Arabian Monetary Agency, observed in Packing for India (2014), even $5–10 million trades can shift prices in smaller markets. In contrast, U.S. markets absorb such volumes effortlessly — a key reason investors continue to trust the dollar.


Europe and China’s Currency Challenges

While the euro aspires to rival the dollar, structural weaknesses hold it back. In a June 2025 Financial Times op-ed, European Central Bank (ECB) President Christine Lagarde acknowledged that Europe’s “persistently low growth,” “fragmented capital markets,” and limited supply of high-quality sovereign bonds constrain the euro’s rise.

Despite a lower debt-to-GDP ratio than the U.S. (89 percent versus 124 percent), Europe’s supply of safe assets with AA ratings or higher equals only half its GDP — compared to over 100 percent in the U.S. For the euro to compete globally, Lagarde argued, Europe must “complete the single market, reduce regulatory burdens, and build a robust capital markets union.”

Meanwhile, China’s yuan has expanded its reach through the Cross-Border Interbank Payment System (CIPS), with daily transaction values doubling from 2020 to 2023, reaching about $90 billion. Yet, this remains modest compared to $1.8 trillion processed daily through CHIPS, the dollar-based system.

The yuan accounts for just 4.5 percent of international payments and 2 percent of global reserves, limited by capital controls and the lack of deep, open financial markets. Unlike U.S. Treasuries, yuan-denominated assets cannot yet offer investors easy convertibility or legal certainty.

That limitation became clear in 2018 when China’s President Xi Jinping asked Saudi Arabia to sell oil in yuan. The key question that followed: What would Riyadh do with the surplus yuan? Likewise, in 2023, Russian Foreign Minister Sergei Lavrov admitted that India’s rupee payments for oil had become difficult to use — a reminder of how non-convertible currencies can constrain trade.


The Dollar’s Ripple Effects on Africa

When the U.S. Federal Reserve began raising interest rates in 2022, the dollar surged — and so did financial stress in emerging markets.

For African economies, this translated into higher dollar-denominated debt costs and surging import prices. According to UNCTAD and The New York Times, between 2020 and 2022, Egypt’s local wheat prices soared by 112 percent (compared to 89 percent globally), while Ethiopia saw a 176 percent jump. In Ghana, household costs for essentials rose by two-thirds in one year, and the country’s international borrowing costs exploded from 8 percent in 2016 to over 35 percent by 2022.

This underscores the peril of dollar dependence — especially for economies that borrow or import heavily in foreign currencies.


Learning from Asia: The “Tokyo Consensus”

To escape such vulnerabilities, African policymakers might draw lessons from Asia’s post-1997 financial crisis reforms — what former IMF Chief Economist Kenneth Rogoff calls the “Tokyo Consensus.”

Its principles include:

  1. Building large foreign reserves — as seen in Japan ($1.2 trillion), India ($650 billion), and Brazil ($300 billion).

  2. Strengthening financial regulation, with capital and liquidity standards that deter speculative inflows.

  3. Maintaining selective capital controls to prevent short-term volatility.

  4. Empowering independent central banks to stabilize inflation and promote borrowing in local currencies.

  5. Adopting managed exchange rate regimes that are flexible enough to absorb shocks but stable enough to support exports.

Former Bank Negara Malaysia Governor Zeti Akhtar Aziz emphasized that these reforms demand “strong governance and patient institution-building” but remain essential for financial sovereignty.


The Road Ahead for Africa

For Africa, the path forward lies not in rejecting the dollar but in reducing vulnerability to it.

This means stabilizing exchange rates, empowering central banks to uphold price stability, and creating deep domestic capital markets that allow governments and businesses to borrow in local currencies.

Such reforms require both political will and institutional resilience. But as former U.S. Federal Reserve Chairman Paul Volcker once said, “The exchange rate is the most important price in an economy.”

By mastering that “most important price,” Africa can shield itself from external shocks, attract investment, and chart a path toward sustainable, self-directed growth.

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