Tech Revolution reports: Africa is leading the charge in global shift away from US dollar in international trade.
De-dollarization is becoming the buzzword of the moment. Recent developments across the African continent, Europe, Iraq, and Venezuela are shining a spotlight on this growing trend. From the push for a unified currency in Africa to France’s bold decision to ditch the dollar in trade with China, the world is witnessing a transformation in how countries do business. So, what does this mean for the future of the US dollar and the global economic landscape?
Africa is moving to take significant steps towards a unified currency and rto educe its reliance on the US dollar. One of the key initiatives driving this momentum is the Pan-African Payment and Settlement System, also known as PAPSS. This system aims to facilitate trade and economic cooperation among African nations. It works by enabling them to conduct transactions using their own currencies rather than relying solely on the US dollar. The African Export-Import Bank is actively participating in implementing PAPSS, providing the necessary support and infrastructure. Their involvement highlights the commitment of African countries to foster financial independence and strengthen regional economic integration. And as PAPSS gains traction, more countries are expected to join the system. The African Export-Import Bank anticipates that by the end of the year, 15 to 20 countries will have joined PAPSS. This would solidify the collective effort towards reducing dependence on the US dollar and promoting intra-African trade.
Europe is also making advances to reduce its dependence on the US dollar. In fact, France has decided to ditch the dollar for an LNG gas trade with China. By conducting this trade using currencies other than the US dollar, France is signaling its desire to diversify its currency holdings and promote alternative payment methods. This move by France has broader implications for European countries seeking alternatives to the US currency. It also highlights a growing sentiment among European nations to explore new avenues and reduce reliance on the dollar-dominated financial system. And by embracing alternative currencies and payment mechanisms, European countries aim to enhance their economic autonomy. It also reduces their exposure to potential disruptions caused by fluctuations in the US.
Meanwhile, Iraq has banned US dollar transactions to strengthen its own currency and gain control over the black-market exchange rate. The motivation behind Iraq’s move is to curb the volatility in its currency. They also want to reduce its reliance on the US dollar. By banning US dollar transactions, Iraq aims to promote the use of its own currency and increase its value in the global market. This move is part of Iraq’s broader de-dollarization efforts, which involve reducing its dependence on the US dollar and diversifying its foreign exchange reserves. And by strengthening the Iraqi Dinar and controlling the black market exchange rate, Iraq hopes to stabilize its economy and attract foreign investment.
Venezuela is also actively promoting alternative payment platforms to SWIFT, the global banking network. This aligns with the country’s push for de-dollarization, aiming to reduce its reliance on the US dollar in international transactions.
By seeking alternatives to SWIFT, Venezuela is looking to establish more independent and secure payment systems that are not subject to potential US sanctions. Furthermore, Venezuela’s efforts to promote de-dollarization are closely linked to its use of cryptocurrencies for oil transactions. One example is its own national cryptocurrency called the Petro, to bypass traditional financial systems dominated by the US dollar. In addition, Venezuela can conduct transactions outside the reach of US sanctions and financial restrictions by accepting cryptocurrencies as a form of payment for its oil exports. Using cryptocurrencies in oil transactions gives Venezuela anonymity and flexibility, as these digital assets are not directly controlled by any single country or central authority. It allows Venezuela to establish direct and peer-to-peer transactions. It also reduces the need for intermediaries and potentially lowering transaction costs.
Source: Tech Revolution, June 28, 2023. https://youtu.be/v396cF_GzR0