Africa Watch | US Dollar Hegemony Harms African Economy: Multiple Countries Call for "De dollarization" of the US Dollar | Countries | Africa

The data on high inflation and currency depreciation in African countries continues to break records, and some countries have even experienced protests and political turmoil. Kenyan President Luto recently called on African countries to achieve local currency settlement in trade and reduce dependence on the US dollar during his visit to Djibouti. He asked why Kenyans use US dollars to settle their purchases from Djibouti?

△ Kenyan President Luto

So, what harm has the irresponsible monetary policy of the Federal Reserve caused to the African economy and people's livelihoods? Starting from the latest response measures released by Zimbabwe and South Africa in this issue of Africa Observation——

The Federal Reserve's Crazy Interest Rate hikes in Africa, Unclear Economic Development Prospects for Multiple Countries

The International Monetary Fund recently released a research report stating that the currencies of most sub Saharan African countries have weakened against the US dollar, and the soaring import prices of goods have intensified inflationary pressures on the entire African continent. Coupled with the slowdown in economic growth, decision-makers face difficult choices as they need to strike a balance between controlling inflation and a fragile economic recovery.

△ Profit decline for local retailers in South Africa

South African retailer Mr. Price is considered a leader in the South African retail industry. According to data from June 22nd local time, due to increased inflationary pressure and power outages, the retailer's net profit has significantly decreased. Faced with inflationary pressure, should the South African central bank continue to raise interest rates, which poses a dilemma. On June 21st local time, South African Central Bank Governor Lessetia Kaniago stated that South Africa needs to curb inflation by raising interest rates. "The public's complaints about the soaring cost of living predate those about rising interest rates, and the Reserve Bank of South Africa must first protect the local purchasing power of the rand." The Monetary Policy Committee of the South African Central Bank has raised the benchmark interest rate in the past 10 meetings, aiming to bring inflation back to the middle level of 4.5% in the target area, and the committee hopes to anchor expectations accordingly. At present, the benchmark interest rate in the country is 8.5%, a new high in 14 years.

South African Central Bank Governor Lessetia Kaniago

This kind of problem not only occurs in South Africa, an important African economy, but also in countries such as Kenya, Zimbabwe, and Ghana facing economic difficulties brought about by the US dollar interest rate hike. Zimbabwe, a country that once experienced hyperinflation, has issued a new currency but is still shrouded in the shadow of inflation and currency depreciation. Since the beginning of this year, the Zimbabwean currency has depreciated by 80%, and many Zimbabweans are concerned about returning to the era of vicious inflation in the past. In recent months, commodity prices in Zimbabwe have continued to rise, even the price of bread to meet basic needs has risen. On June 9th local time, Zimbabwe's Sunday Post reported that the price of bread in the country has exceeded 10000 Tianjin dollars per person, causing public concern.

Reported by Zimbabwe's Sunday Post

According to reports, due to the rapid depreciation of the Zimbabwe dollar and sustained macroeconomic instability in recent months, the price of bread in Zimbabwe has risen significantly within 12 hours, from 10000 to 12200. For the constantly falling Tianjin yuan, the head office reporter also has a deep understanding. On November 30th last year, the official central parity rate of the US dollar against the Zimbabwean dollar was 1:654. On June 22 this year, the official central parity rate of the US dollar against the Zimbabwean dollar was 1:6840. And the black market exchange rate is even more exaggerated. The front desk reporter found in some supermarkets that due to the large daily fluctuation of the Tianjin yuan, they had to change the price tags every day. Recently, some supermarkets in the capital Harare have started to price their products in US dollars, even encouraging customers to pay in US dollars through discounts.

A supermarket in Harare, the capital of Zimbabwe

In addition to the rise in commodity prices, the stock prices of Zimbabwe's major stock exchanges have also risen rapidly. Zimbabweans are trying to protect their savings from the impact of currency depreciation, leading to a 760% rise in the country's main stock index this year.

The Zimbabwean government has also begun taking measures to respond.

On June 6th local time, the Reserve Bank of Zimbabwe raised its main loan interest rate by 10 percentage points to 150%, the highest in the world, to curb inflation and protect the country's weak currency. Zimbabwean Central Bank Governor Mangudia admitted in a media interview that the country is facing "structural challenges" and people are more willing to hold the US dollar as a means of hedging, but this comes at the cost of sacrificing the Zimbabwean dollar. He said, "Our vision is to have a single currency, but currently we are working in stages and we need to make the economic fundamentals correct to achieve stable inflation and exchange rates."

In June, Zimbabwean President Mnangaguva ordered the central bank to stop foreign currency lending, and banks can only borrow foreign currency on behalf of the country at the request of the Minister of Finance, not on their own behalf. Zimbabwean President Mnangaguva also announced that all payments to any foreign country will be charged a 1% fee for the next six months, up to a maximum of $50000, with the aim of stabilizing the domestic currency exchange rate.

US dollar hegemony exacerbates Africa's debt crisis

Due to a significant portion of global fuel and food being priced in US dollars, the impact will be amplified when the US dollar itself fluctuates. The dual blow of US dollar interest rate hikes and intensified inflation has caused headaches for central banks in African countries. The depreciation of currencies in African countries has made the import costs of already expensive food and fuel more expensive.

Although many countries have established fuel or food subsidies to help reduce the impact on their populations, this often increases budget deficits and pushes up debt levels when financing for debt suddenly becomes more expensive.

According to data from the International Monetary Fund, approximately 40% of public debt in sub Saharan Africa is external debt. For most countries, over 60% of their debt is in US dollars. With the depreciation of local currencies in African countries, repaying US dollar debt has become more expensive, and more countries are facing potential future debt crises.

Mark Price, Regional Head of Financial Markets for Africa and the Middle East at Standard Chartered Bank, stated in his article "Can Africa Reduce the Impact of the US Dollar on Its Emerging Markets?" that some may argue that a stronger US dollar should be seen as an opportunity for Africa, as foreign investment into the continent is cheaper for US investors and US dollar based exports from Africa are relatively more competitive. However, if foreign investors still feel nervous about the continuous depreciation of their domestic currency and the impact on their currency returns after being converted back to the US dollar, then the phenomenon of flocking to emerging markets will not become a reality.

In fact, the US monetary policy went from extreme easing to a frenzy of interest rate hikes, which in turn triggered a chain reaction in the global market. The irresponsible monetary policy of the United States is the catalyst for the outbreak of debt problems in some African countries.

Multinational individuals: African countries should not rely on the US dollar

Recently, the Foreign Policy of the United States published an article titled "BRICS currencies may shake the dominance of the US dollar.". It is not difficult to see from the article that more and more countries have been harmed by the hegemony of the US dollar, and countries are gradually realizing that "de dollarization" is one of the possible solutions.

Former Minister of Information and Communication Technology of Zimbabwe, Supa Mandiwanzla, stated in an interview with reporters that using the US dollar to purchase commodities such as fertilizers and seeds poses significant risks to the country and that it should use its own currency to enhance its competitiveness in the future. Faced with the trend of "de dollarization", he believes that Zimbabwe should adopt a diversified reserve currency layout. The irresponsible and crazy behavior of the United States has threatened the value of the US dollar. African countries should realize that they cannot overly rely on the US dollar.

Former Minister of Information and Communication Technology of Zimbabwe, Supa Mandiwanzla

Frans Kurik, a member of the Namibian ruling party, stated in an interview with reporters that the United States is using its hegemonic position in international settlements and financial infrastructure to seize the economic development achievements of other countries, shifting its own risks during crises, and using hegemonic actions to coerce the world into paying for its irresponsible actions.