Currency war: Africa must look neither East nor West, but within

There is an ongoing currency war where the US, a declining power, is fighting to maintain the hegemony of the US dollar and its position as a global economic power. On the other hand, China, an emerging economic power, is striving to displace the dollar’s dominance. China aims to achieve this not through its own currency alone but by aggregating other emerging economies, particularly those within the BRICS alliance.

The Local Currency Bandwagon

In Asia, India is at the forefront of the ‘local currency bandwagon’. Recently, it settled its first trade in local currency with the United Arab Emirates, including oil and gas transactions in Rupee-Dirham trade. India is now encouraging its close allies, such as Saudi Arabia (its second-largest crude oil exporter) and Qatar (its largest supplier of liquefied natural gas), to join its local currency trade initiatives. Additionally, India is currently in talks with Indonesia to move away from the dollar and begin bilateral trade in rupees and rupiah.

In Africa, Kenya is also promoting the idea of trading in local currencies. President William Ruto has been an outspoken advocate for intra-African trade settlement using local currencies. This idea has gained enthusiasm, and discussions on de-dollarization have become increasingly common in the region. But it is not without reason that Africa’s post-colonial Pan-African leaders were more united in their pursuit of a single African currency rather than trading in local currencies.

What then, can one make of Ruto’s ‘trading in local currency’ bandwagon? Without doing injustice to his motives, I want to submit that while on the surface, it may appear that Ruto is championing a pan-African cause, in reality, he is not. The true pan-African vision entails the establishment of one African currency. The promotion of the local currency bandwagon only diverts attention from this idea of a ‘single African currency’.

Instead of Africans focusing on aligning monetary policies, establishing a central bank, and addressing economic disparities among African countries—prerequisites for a single African currency—we are now sidetracked and widening the divides that impede the realization of a unified currency.

The pan-African concept behind one African currency stems from the understanding that Africa is “one country”, and its people are united as one. The motive behind advocating for a single African currency is to enhance Africa’s geopolitical standing by presenting a unified front in global economic and financial affairs. The aim is to facilitate stronger economic integration, attract investment, not to one African country, but to the continent as a whole, and increase continental Africa’s influence in global financial systems.

The Local Currency Bandwagon serves US interests

In the case of Africa, what we need is one African currency, not 40+ African currencies trading with each other! Yet, that is the idea that Kenya’s Ruto is promoting. Notice that the idea of Africans trading in their own currencies is not necessarily detrimental to Africa, but it may not be the most beneficial approach either. The critical distinction, however, is that the ‘local currency bandwagon’ actually serves the short-term interests of the US in its efforts to undermine the BRICS currency and the rise of China. Think of it as a short-term concession by the US to discourage African countries from embracing the planned BRICS currency and frustrate its implementation, while it plots to regain ground in the long term.

How is this so? The US understands that the primary challenge to the dominance of the US Dollar does not stem from African local currencies in isolation, but from an alternative ‘unified’ currency, be it a single ‘BRICS Currency’ or a single “African Currency”. The U.S. is not threatened by Africans settling trades using their 40+ currencies whose maintenance will inevitably lead to limited effectiveness and sustainability. The hurdles of currency fluctuations, lack of liquidity, and divergent economic conditions among African countries will certainly undermine the long-term viability of trading in local currencies. The volatility caused by local currency fluctuation will also discourage major businesses from participating in intra-African trade, ultimately leading them to again prefer a more stable US dollar for transactions.

One African Currency

For Africa, the way forward is a single African currency. At its core, this is due to the same benefits that our leading economies are currently eager to gain by joining the BRICS alliance. However, joining the BRICS and benefiting from the BRICS currency does not exclusively benefit Africa as a continent, even though it contributes to de-dollarizing and weakening America’s Dollar-based hegemonic order.

To truly advance the interests of the entire African continent, we need a single African currency. This currency would symbolize African unity and integration. A unified currency would foster a sense of collective identity and solidarity among African nations, promoting a shared vision of continental progress and development. A single African currency would also foster economic independence for Africa. It would automatically eliminate the need for African countries to rely on external currencies, especially those of former colonial powers, thereby enhancing the continent’s economic sovereignty. For instance, it would free West African countries whose currency is currently printed and managed in France. A single currency would assert economic self-determination and reduce vulnerabilities to external economic pressures, benefiting both individual African countries and the continent as a whole.

Moreover, a single African currency would facilitate intra-African trade by removing barriers within the continent. It would eliminate the complexities and costs associated with currency conversions and exchange rate fluctuations, greatly facilitating trade within Africa. This would promote economic growth, regional integration, and prosperity across the continent. Furthermore, a single African currency would strengthen political ties among African nations. Closer economic integration through a common currency would lead to greater political cooperation, coordination, and stability among African countries. It would ensure that a unified Africa speaks with a collective voice on the global stage.

Lastly, a single African currency would enhance Africa’s global influence in economic affairs. It would provide the continent with greater leverage in international trade negotiations, strengthen Africa’s bargaining power, and elevate its standing in the global economic order.

Neither West nor East – but within

That said, Africa is at a crossroads where it can play a role in decelerating the decline of the US by frustrating the BRICS through ‘trading in local currencies’, or it can contribute to the accelerated rise of China by maintaining the status quo, muting the idea of ‘trading in local currencies’, and allowing the BRICS to gain a foothold. This would result in having two alternatives to choose from: the USD and the BRICS Currency. The US dreads this scenario, as it understands that its historical leverage of the USD to subjugate the world means the majority of the world will likely opt for the BRICS Currency, which would primarily benefit China, the largest economy within the BRICS alliance.

Given this context, what can Africa do? Asking this question is essentially asking which side Africa will choose between the US and China, between the declining sun of the West or the rising sun of the East. I believe Africa should choose a muted third option: Africa as the latent sun of the global South. This entails pursuing a single African currency. As it stands, both the US and China recognize Africa’s capacity to tilt the scales in their favor in their competitive race. Consequently, both are vying for Africa to align with their respective interests. The US as often, is resorting to covert and underhand tactics, possibly utilizing Kenya (in Africa) and India (in Asia) as disruptive instruments in their respective regions to frustrate the BRICS currency, under the guise of ‘trade in local currencies’.

Meanwhile, China is leveraging the BRICS alliance. If African countries were to choose between the two, the option that aligns closest with their individual country interests would be the BRICS currency. However, this choice would only perpetuate the approach of ‘every African country for itself!’ However, to move forward as one, embracing the African spirit of Ubuntu, Africa must look neither East nor West, but within. One African Currency is the way to go.