Goldtent TA Paradise

Africa says bye to the US dollar. The President of Kenya, Williams Ruto , urges African nations to dump USD under tumultuous applause.

1. Farmer says:

   June 14, 2023 - 4:41 am at 4:41 am

   Well its not quite “dumping” of the dollar in the case of African countries although a casual reader might think that. Russia and China have the luxury to dump dollars because they own a lot and keep them stored in the form of Treasuries. Those countries run a positive balance of trade. They can operate in currencies other than their own. Most African nations have no such luck as they are virtually all in negative trade balances. Exceptions during 2021 were Gabon, Angola, Zambia, Congo, Ghana and Sudan who were in the positive category.

   What it means for the rest is they have no foreign currencies savings. They are broke.

   So the real problem is most African nations suffer from chronic dollar (foreign currency) shortages and therefore cannot grow, develop or pay their debts. They are in a straightjacket being tied to the use of reserve currencies. But many of them have so little in the way of exports to the wealthier nations they cannot earn enough foreign currency to even pay their own foreign debts. The IMF and World Bank do not accept Kenyan Shillings for example. The Chinese will accept Renminbi and dollars but not other African currencies.

   So trade within Africa itself is stifled by the conventions of currencies exchange. An Ethiopian Birr is utterly worthless in neighboring Kenya and Sudan. Nobody wants them. Not even currency exchange places. This is partly due to the fact that African governments have really mismanaged their own currencies in the past. They don’t trust each others money or economic policies. Currency canceling events have been common and nobody wants that risk which is why most still prefer dollars from one another.

   So moving away from USD as the primary exchange medium won’t make anyone in Africa wealthier. It just gives them more options to trade with one another while increasing the exchange risk a little. You have to understand that nobody is actually forcing anyone else to trade in dollars or euros. Its not like its a law or something. Business and government just prefer them for their liquidity, consistency and general stability.

   • Strider says:

     June 14, 2023 - 5:16 am at 5:16 am

     Brilliant post, Farmer! To get out of a straight jacket, one needs clarity. You have provided some. It’s not impossible, but it’s not easy.

     • Farmer says:

       June 14, 2023 - 5:35 am at 5:35 am

       Thanks Strider.