How revolt against the dollar is remaking Kenya’s foreign policy

The once mighty United States dollar is facing its worst crisis ever. Since World War II, the greenback, together with the US military and Trans-Atlantic Alliance System, formed the trinity that undergirded American power. In their influential book, De-dollarization: The Revolt against the Dollar and the Rise of a New Financial World Order  (2019), Gal Luft and Anne Korin attribute the crisis of the dollar to an “emerging coalition of revisionist countries, rogue governments, techno-visionaries and sanctioned entities, buttressed by innovations like blockchain and 5G”. 

The unravelling of the dollar has seismic effects on global affairs. The future of the dollar, and that of American power, hangs in the balance.

In Africa, the dollar is facing its worst revolt from an increasingly assertive pan-African opinion, reminiscent of the era of Kwame Nkrumah, Patrice Lumumba, Thomas Sankara and Muamar Gaddafi. Kenya’s President, Dr William Ruto, is the new face of Africa’s anti-dollar revolt. How is Kenya’s plunge into the global dollar wars shaping its foreign policy?

Subtly, Africa wants the greenback removed from its internal commercial transactions. In recent weeks, President Ruto has called on African countries to abandon over-reliance on the dollar in their trade.

Regionally, Africa’s anti-dollar revolt is stoked by the devastating socio-economic impacts of the recent drought – the longest and severest in decades – the Covid-19 pandemic and the war in Ukraine.

Globally, two mutually reinforcing trends have fuelled the clamour for de-dollarisation. One is the growing discomfort with America’s overly aggressive use of economic coercion and weaponising the dollar’s status as the international reserve currency.

As of June 2023, one in 10 countries are under US sanctions. Sanctions reached a tipping point in the Russia-Ukraine conflict.

Two is the dollar’s wild fluctuations, which have wreaked havoc on regional currencies and pushed economies to the ropes. The US accounts for only one-tenth of global trade. But about half of global trade is invoiced in dollars.

Impeded commerce

The African case against the dollar is two-fold. One, scarcity of the currency due to high demand has impeded commerce on the continent, hobbling importers of vital consumer goods such as fuel, edible oil, medicine and food.

Two, because the currency is not a necessity in intra-Africa trade, countries can, and should, do away with it. After all, its dominance has stymied the usage of local currencies, undermined the growth of local systems of payment and kept Africa’s share of global trade pitifully low — currently estimated at only one per cent.

The solution is to revamp the Cairo-based Africa Import-Export Bank (Afreximbank), established in 1993 under the auspices of the African Development Bank, as a financial institution to settle all the payments in local currencies, promote and finance trade.

Africa’s intention is not to ditch and render the US dollar worthless. It is to increase intra-continental trade, stem the surge in demand for the dollar, thus freeing the currency for local circulation. De-dollarising commercial transactions will streamline transactions and foster greater economic integration within Africa.

Undeniably, however, the net effect of Africa’s de-dollarisation is the clipping of the currency’s dominance globally. Expectedly, American wonks would be right to view President Ruto’s Afro-centric trade diplomacy through the wider prism of the global revolt to topple the dollar from its global reserve currency throne.

Strategic neutrality

Pragmatism, strategic neutrality and self- interests have collectively been the cornerstone of Kenya’s foreign policy. Is the country being sucked into the campaign against the dominance of the dollar — as critics fret?

 Seemingly, Nairobi is re-honing its ‘Look East policy’ to counter its economic crisis. It is forging stronger ties with the powerful BRIC group — Brazil, Russia, India, China and South Africa—which makes up 40 per cent of the world’s population, almost a third of the global economy and brings together about 3.2 billion people.

Lavrov’s visit

De-dollarisation is the lynchpin of the foreign policy of Russia. Obviously, it featured during the Russian foreign Minister Sergei Lavrov’s visit to Nairobi on May 29. During the meeting, the President pointed to the perils of the dominance of the dollar on intra-Africa trade.

Since adopting its ‘Look East policy’, Kenya has pivoted to Russia as its source of grains, oils and fertiliser. On the eve of Lavrov’s visit, Nairobi announced that it was going to sign a trade pact with Moscow to boost cooperation between businesses.

 Russia shipped 30 tonnes of fertiliser to Kenya under a memorandum signed under the United Nations to give fertilisers and food to struggling countries. Kenya reportedly plans to buy tractors from Belarus, Russia’s strongest ally under heavy American sanctions, a move likely to trip sanctions against Russia.

An alternative global trade settlement system is no longer a mere concept but a reality.

Brazilian President Lula da Silva has been vocal in pushing for an alternatives to the dollar based on a ‘BRICS currency basket’, the Five Rs: real, ruble, rupee, renminbi and rand.

Safe store of value

But the push for alternatives to the dollar goes beyond America’s geopolitical challengers in the BRICS.

This is fuelled by the feeling among countries that the dollar is no longer a safe store of value.

Countries fear America’s economic practices, especially ballooning debt projected to reach $44 trillion by 2027.

In response, countries are developing alternative arrangements to secure their trade. The first China-Gulf Arab States Cooperation Council summit agreed to establish a system to settle oil and gas trade payments in China’s renminbi.

Saudi Arabia has jettisoned the use of the dollar in oil transactions to beat the NOPEC Act, which the US passed to target Riyadh.

In this context, Kenya has signed oil-for-credit deal with Saudi Arabia and the United Arab Emirates under payment arrangements that allowed the use of local currencies.

India has come up with a rupee-based settlement system for international trade.

America’s allies are also not at ease with the dollar. In April, French President Emmanuel Macron called for Europe to reduce its reliance on the US dollar to avoid becoming ‘vassals’ of the US.

 And the Bank of Israel, too, is set to reduce the proportion of the dollar in its foreign exchange reserves.

As such, Kenya’s fight for a new global financial order is neither misguided nor in vain. It is in line with the pragmatic, self-interest and Afro-centric traditions that undergird its foreign policy.

Prof Kagwanja is the Chief Executive of the Africa Policy Institute. This article is based on remarks made during a Think Tank Forum of the ‘Third China—Africa Economic and Trade Expo’ (CAETE) held in Changsha, Hunan, China on June 30, 2023.