Johannesburg, South Africa – Since the Bretton Woods Agreement in 1944, the US dollar has maintained its position as the cornerstone of the global financial system. Its dominance as the world’s reserve currency stems from the strength of the US economy and confidence in its financial system.
The dollar underpins international trade, reserve holdings, and commodity pricing. However, its increasing use as a tool for economic sanctions by the United States has sparked geopolitical tensions and encouraged countries to explore alternatives, raising questions about the sustainability of its supremacy.
AfricaHeadline Reports Team
editorial@africaheadline.com
The dollar has become a key instrument in US foreign policy, particularly through the imposition of sanctions. While effective in the short term, this strategy is reshaping global financial dynamics and prompting moves towards a more fragmented system.
Countries such as Iran, Russia, and Venezuela have been targeted by dollar-based sanctions, which restrict access to the global financial network, including SWIFT, and freeze foreign reserves.
For example, in response to Russia’s actions in Ukraine, the US and its allies froze over $300 billion of Russian central bank assets in 2022. These measures have forced Moscow to increase the use of the yuan and ruble in international trade.
To bypass restrictions, sanctioned nations are diversifying their financial instruments. In 2024, 17% of China-Russia trade was conducted in yuan, and agreements for bilateral trade in local currencies have proliferated. Cryptocurrencies, such as Bitcoin, have also been adopted by countries like Venezuela to conduct international transactions outside traditional systems.
The weaponisation of the dollar is accelerating the fragmentation of the global financial architecture. Emerging economies, particularly within regions like Africa and Southeast Asia, are seeking greater autonomy through alternative mechanisms.
The dollar accounts for 58% of global foreign exchange reserves, solidifying its dominance. However, its extensive use in sanctions has strained relations with allies and rivals alike. Meanwhile, domestic issues, including a fiscal deficit and national debt surpassing $33 trillion in 2024, have raised concerns about the long-term sustainability of US economic dominance.
The BRICS nations—Brazil, Russia, India, China, and South Africa—are at the forefront of efforts to reduce reliance on the dollar. In 2024, the bloc discussed creating a common currency to support trade within its members, which collectively account for over $3 trillion in annual trade.
China has also propelled the yuan to become the second most used currency in global trade, particularly in energy imports from the Middle East.
While the euro represents 20% of global reserves, the European Union remains dependent on the dollar, especially in energy markets, where over 80% of oil imports are priced in dollars.
Although initiatives such as euro-denominated debt issuance aim to strengthen the euro’s global standing, political fragmentation within the EU continues to hinder its broader adoption as a dollar alternative.
Many African nations remain heavily reliant on the dollar for international trade, particularly for importing essential goods like food and fuel. Approximately 75% of Africa’s trade transactions are conducted in foreign currencies, primarily the dollar, leaving these economies vulnerable to exchange rate volatility and external shocks.
The African continent is taking steps towards financial independence through initiatives such as the African Continental Free Trade Area (AfCFTA), which connects over 50 countries and 1.3 billion people. By promoting intra-regional trade in local currencies, AfCFTA aims to reduce transaction costs and reliance on the dollar.
African nations are emerging as leaders in financial technology adoption. Nigeria, Africa’s largest economy, has introduced the eNaira, its digital currency, to facilitate both domestic and international transactions. Additionally, Africa accounts for nearly 20% of global cryptocurrency transactions, demonstrating the continent’s growing interest in decentralised financial solutions.
The US dollar’s role as a tool for economic sanctions underscores its dominance in the global financial system but also accelerates the push for alternatives.
Blocs such as BRICS, allies like Europe, and regions like Africa are increasingly exploring strategies to diversify their reserves and trade mechanisms.
While the dollar remains the backbone of the financial system, its supremacy is facing mounting challenges from geopolitical shifts and technological advancements.
However, the absence of a single viable alternative ensures its dominance will persist in the near and medium term. The future of the global financial system will depend on how traditional powers and emerging economies balance national interests with the need for greater cooperation in an increasingly multipolar world.
