Aboubakr Barry, CFA
Managing Director
Results Associates
Bethesda, MD
Why Must Global Trade Rely on the Dollar?
In April 2023, Brazil’s President Lula questioned in Shanghai why global trade should rely so heavily on the U.S. dollar—a currency whose supremacy was never the result of a democratic global vote. Despite frequent headlines about “de-dollarization,” the basic reality endures: the dollar’s dominance is maintained due to its liquidity, scale, and unrivaled supply of trusted assets. According to Paul Blustein in King Dollar (2025), around 60 percent of central bank reserves are held in dollars, predominantly U.S. Treasuries. Over three-quarters of global trade outside Europe occurs in dollars, and in the Western Hemisphere it’s an astonishing 96 percent.
The dollar accounts for 60 percent of cross-border deposits and loans, 70 percent of all international bonds, and about 90 percent of foreign exchange trades.
Even for business transactions between unrelated currencies, such as between Nigeria and Chile, the dollar typically remains the vehicle.
Why the Dollar Still Dominates
Exporters prefer billing and borrowing in dollars to reduce exchange rate risk. Once paid, those dollars are exchanged for local currency needs, driving continued FX demand. Risk management worldwide is built around dollar-based instruments.
The Bank for International Settlements (BIS) reported that daily FX trading hit $9.6 trillion in April 2025, with the dollar involved in 89 percent of trades.
The U.S. Treasury market, the world’s largest, stands at $18 trillion with $600 billion traded daily—allowing participants to transact huge sums without moving prices.
As David Mulford, a longtime advisor to Saudi Arabia, noted, such liquidity is absent elsewhere; even $5–10 million can impact prices in smaller markets. U.S. financial markets retain haven status due to strong property rights, reliable contract enforcement, and monetary independence.
What About the Euro and the Yuan?
The euro’s global ambitions face persistent structural and policy barriers.
ECB President Christine Lagarde wrote in June 2025 that Europe’s slow growth, fragmented capital markets, and shortage of high-quality safe assets (sovereign bonds rated AA or better are under 50 percent of EU GDP, versus over 100 percent in the U.S.) all limit the euro’s international reach.
For the euro to rise as a global currency, Europe must complete its single market, streamline regulations, and unify its capital markets.
Additionally, eurozone government debt is fragmented, which restricts the bond market’s depth and hinders the euro’s liquidity.
China is gradually increasing the yuan’s role. The Cross-Border Interbank Payment System (CIPS) now processes $90 billion in daily transactions—a leap from 2020 but small compared to $1.8 trillion daily via CHIPS, the dollar system.
The yuan only covers around 4.5 percent of international payments and about 2 percent of all global FX reserves. Restricted by capital controls, limited legal protections, and official oversight of many transactions, the yuan cannot offer the versatility of the dollar.
Past attempts at de-dollarization reveal key limits. In 2018, Xi Jinping encouraged Saudi Arabia to denominate oil sales in yuan, yet major questions emerged about how to use excess yuan. Similarly, when Russia sold oil to India in rupees (2023), Foreign Minister Sergei Lavrov admitted the funds could not be easily used without conversion to a more liquid global currency.
What This Means for Africa
Dollar appreciation, especially following Fed rate hikes in 2022, triggered severe consequences for many African economies. Dollar-denominated debts and imports ballooned. UNCTAD and The New York Times reported local wheat prices in Egypt soared 112 percent from 2020–2022 (well above the global average), with Ethiopia seeing a 176 percent increase. In Ghana, essential household costs rose by two-thirds in a year and borrowing costs exploded from 8 percent in 2016 to over 35 percent by 2022.
Lessons and Next Steps
The Asian response to the 1997 crisis is instructive. Kenneth Rogoff, ex-IMF chief economist, terms it the “Tokyo consensus,” recommending:
- Accumulating large FX reserves (as seen in Japan, India, Brazil, and South Africa) to reduce IMF reliance.
- Strengthening financial regulations and liquidity rules.
- Applying selective capital controls to curb volatile inflows.
- Granting central banks operational independence, focusing on price stability and deepening local currency markets to reduce dollar reliance.
- Opting for a managed exchange rate—neither strictly pegged nor fully floating—to improve competitiveness while mitigating USD volatility.
Former Malaysian central bank governor Zeti Akhtar Aziz admits building deep local markets and strong regulation is arduous work, but essential for emerging markets’ financial resilience.
For Africa, core priorities must include stabilizing exchange rates, empowering independent central banks, reinforcing financial regulation, and especially broadening the ability of governments and businesses to borrow in domestic currency.
This trajectory allows for reduced over reliance on the dollar. African finance ministers and central bank chiefs have real power to improve conditions by adapting the Tokyo consensus, tailoring it to African realities.
The critical determinant will be the political will to enact challenging reforms and resist pressures for easy but unsustainable solutions. As Paul Volcker, legendary Federal Reserve chairman, said, “The exchange rate is the most important price in an economy.”
By managing this crucial variable, Africa can better insulate itself from external shocks, strengthen sociopolitical stability, and attract investment for transformative growth.
