The U.S. dollar began to displace the pound sterling as international reserve currency from the 1920s since it emerged from the First World War relatively unscathed and since the United States was a significant recipient of wartime gold inflows. After the U.S. emerged as an even stronger superpower during the Second World War, the Bretton Woods Agreement of 1944 established the post-war ainternational and monetary system, with the U.S. dollar ascending to become people world’s primary reserve currency for international trade, and the only post-war currency linked to gold at $35 per troy ounce.
Since the establishment of the Bretton Woods system, the US dollar has been used as the medium for international trade. The United States Department of the Treasury exercises considerable oversight over the SWIFT financial transfers network, and consequently has a huge sway on the global financial transactions systems, with the ability to impose sanctions on foreign entities and individuals. However, while the debate on whether China has toppled the US as the globes superpower became more heated in the last two years, a majority of countries and continent’s have started to see the point in having a currency of their own and walking away from the seemingly restrictive and manipulative territory of the dollar.
Several countries, including Argentina, Brazil, Bolivia, China, Ghana, India, Iran, Malaysia, Russia, Saudi Arabia, Turkey, and Venezuela, are actively exploring alternatives to the US dollar in international trade. Argentina and Brazil plan to use the yuan for Chinese imports to safeguard their diminishing dollar reserves, while Bolivia considers adopting the yuan due to insufficient liquidity in domestic markets. China has been gradually shifting from the US dollar since 2011, with recent developments in oil trade and calls for yuan settlements. European countries faced challenges with Russia’s demand for ruble payments for natural gas imports. India seeks to reduce reliance on the dollar, and Iran explores diverse currencies to bypass sanctions. Malaysia aims for de-dollarization to stabilize its currency. Russia has agreements with Turkey for ruble trade in natural gas and has settled gas supplies to China in rubles and yuan. Saudi Arabia expresses openness to trade in other currencies besides the US dollar, and Turkey aims to decrease dependence on the dollar in global commerce. Venezuela declared pricing its oil in euros, yuan, rubles, and other currencies back in 2018. In some statistics that were partially complete, CNN reported that over 60 countries have hastened efforts to walk away from the US Dollar.
How EAC is Catching Up
Kenya, leading the East African Community (EAC), is actively working on harmonizing crucial policies and establishing necessary institutions to achieve a single currency for the region, as outlined in the EAC Monetary Union Protocol.
In 2020, EAC Secretary General Amb. Liberat Mfumukeko shared that the Bill for the East African Monetary Institute (EAMI) had been approved by the Summit of Heads of State. The EAMI would evolve into the East African Central Bank, responsible for issuing the single currency. Initially set for 2024, the common currency’s timeline was extended to 2027, as announced by EAC Secretary General Dr. Peter Mathuki on January 12, 2023 at a hotel in Machakos Kenya. The East African Monetary Institute, serving as a precursor to the East African Central Bank, will issue the planned single currency.
This shift implies transferring the authority to issue national currency from governments to the East African Monetary Union, a move aimed at promoting regional economic integration. To facilitate cross-border trade and diminish reliance on the US dollar, the EAC encourages member states to adopt local currencies. Kenyan legislator David Ole Sankok proposes this approach, aligning with President William Ruto’s call for African countries to transact in their own currencies, fostering freer trade. While some advocate for de-dollarization, critics emphasize the persistent influence of the US dollar in exchange rates. Sankok’s proposal and President Ruto’s stance reflect a push for economic autonomy within the EAC.
The fate of the US dollar as the global lingua franca of commerce may be shifting. The ongoing debates surrounding dollar dominance, coupled with calls for aligning fiscal and monetary policies with sound money principles, suggest a potential trajectory toward de-dollarization. Whether slow or swift, the dollar’s influence abroad may see a decline over time.
