Why Must Global Trade Rely on the Dollar?
On April 13, 2023, Brazil’s President Lula asked in Shanghai, “Why must global trade rely on the dollar?” His question—Who decided the dollar’s post-gold standard supremacy?—still resonates.
For all the headlines about “de-dollarization,” the reality is straightforward: the dollar’s dominance endures because it provides liquidity, scale, and a deep reservoir of trusted assets unmatched by other currencies.
Paul Blustein’s King Dollar (2025) reports that approximately 60 per cent of central bank reserves are held in dollars, primarily in the form of U.S. Treasuries. More than three-quarters of global trade outside Europe is dollar-denominated, and in the Western Hemisphere, it’s 96 per cent.
The dollar accounts for about 60 percent of cross-border deposits and loans and 70 percent of all international bonds.
It appears in about 90 percent of currency trades; for instance, Nigerian businesses trading for Chilean pesos typically transit through the dollar.
Why the Dollar Still Dominates
Exporters bill and borrow in dollars to avoid currency risk. Once paid in dollars, conversion for local expenses further boosts demand on FX markets. Most risk management relies on dollar-based instruments.
According to Bank for International Settlement (BIS) figures, daily FX trading reached $9.6 trillion in April 2025, with the dollar involved in 89 percent of those trades.
The U.S. Treasury market, at $18 trillion with $600 billion traded daily, is the world’s largest, letting investors transact vast sums without distorting prices.
As David Mulford, who advised the Saudi Arabian Monetary Agency in the early 1980s and chronicled his experiences in Packing for India (2014), notes, even $5–10 million trades can move prices in other markets. U.S. capital markets remain a crisis refuge thanks to strong property rights, contract enforcement, and monetary independence.
What About the Euro and the Yuan?
The euro aspires to global status but faces limits. Christine Lagarde, European Central Bank (ECB) President, wrote in the Financial Times (June 17, 2025) that “Europe faces structural challenges.
Its growth remains persistently low, its capital markets are still fragmented, and—despite a strong aggregate fiscal position, with a debt-to-GDP ratio of 89 percent compared with 124 percent in the U.S.—the supply of high-quality safe assets is lagging behind.
Recent estimates suggest outstanding sovereign bonds with at least a AA rating amount to just under 50 percent of GDP in the EU, versus over 100 percent in the U.S.
For the euro to gain in status, Europe must take decisive steps by completing the single market, reducing regulatory burdens, and building a robust capital markets union.”
While the eurozone also benefits from the rule of law and an independent central bank, its government bond supply remains fragmented across member states.
This fragmentation limits liquidity and uniformity of safe assets, preventing the euro from matching the depth of U.S. markets.
China, meanwhile, has advanced the yuan’s role via the Cross-Border Interbank Payment System (CIPS), roughly doubling daily value from 2020 to 2023 to $90 billion.
Yet this remains small compared with the $1.8 trillion processed each day through Clearing House Interbank Payments System (CHIPS), the dollar-based system.
The yuan currently accounts for about 4.5 percent of international payments and only 2 percent of global foreign exchange reserves. CIPS is also used by far fewer banks than SWIFT for dollar transactions.
Options for investing surplus yuan remain narrow because China’s capital controls restrict cross-border flows, judicial independence is limited, and many market transactions require official approval—making the yuan far less versatile than the dollar.
This reality surfaced in 2018 when Xi Jinping asked Saudi Arabia to denominate oil sales in yuan; the main question became what to do with any excess yuan.
Similarly, in May 2023, the Foreign Minister of the Russian Federation, Sergei Lavrov revealed that Russia, after selling oil to India for rupees, couldn’t easily use the proceeds: “We need to use this money, but for this, rupees should be converted into other currencies, and this is being discussed.”
What This Means for Africa
When the dollar rises—as when the Fed began hiking rates in 2022—the effects can be
severe for African economies. Dollar debts and import costs balloon. As United Nation Conference on Trade and Development (UNCTAD) and The New York Times reported, Egypt’s local wheat price soared 112 percent between 2020 and 2022 (versus 89 percent worldwide), while in Ethiopia it jumped 176 percent.
In Ghana, household costs for essentials rose by two-thirds in one year, and the nation’s borrowing costs on global markets soared from 8 percent in 2016 to over 35 percent by 2022.
Lessons and Next Steps
The experience of Asian nations after the 1997 crisis offers a blueprint, summarized by Kenneth Rogoff, former chief economist at the IMF, in Our Dollar, Your Problem (2025), as the “Tokyo consensus”:
• Accumulate large reserves to avoid reliance on the IMF (Japan $1.2 trillion, India $650 billion, Brazil $300 billion, South Africa $50 billion).
• Strengthen financial regulations, including capital and liquidity requirements in the financial sector.
• Restore selective capital controls to limit volatile short-term inflows.
• Grant central banks independence to fight inflation and deepen local currency markets—with explicit emphasis on enabling governments and private borrowers to raise funds in local currencies, thereby reducing dependence on the dollar.
• Implement a managed exchange rate regime—neither strictly pegged nor fully floating, as generally recommended by the IMF—to boost trade competitiveness and better manage shocks from dollar volatility.
Dr. Zeti Akhtar Aziz, Malaysia’s central bank governor (2000–2016), stressed that building robust domestic markets is tough, demanding regulatory and governance improvements, but emerging-market central banks are determined.
For Africa, it is imperative to adapt a series of critical steps: stabilizing exchange rates, empowering central banks to maintain price stability, implementing regulations to strengthen the financial sector, and—most importantly—the expansion of capacity to borrow in local currencies in order to reduce excessive reliance on the dollar.
African finance ministers and central bank governors possess the authority to profoundly improve lives across the continent by drawing inspiration from and modifying the principles of the Tokyo Consensus to fit Africa’s unique realities.
This approach offers the most expedient route to accelerated progress, contingent on the political will to enact over time the necessary reforms and the resolve to resist the pressures that run counter to this reform agenda.
As Paul Volcker—former Chairman of the U.S. Federal Reserve and widely regarded as one of the most influential central bankers in history—observed, “The exchange rate is the most important price in an economy.”
By mastering this most important price, Africa can more effectively shield itself from global shocks, strengthen social stability, and position itself to attract the capital needed for transformative growth.
Source: Aboubakr Barry, CFA
The author is founder and managing director of Results Associates, based in Bethesda, Maryland, USA.
