Ghana’s Shift From Dollar is a Step Toward Multipolar World Economy, Expert Says
A gigantic national flag hangs on a building on January 6, 2013, ahead of tomorrow’s inauguration in Accra. The inauguration of President John Dramani Mahama will go ahead as originally planned despite a court challenge by the main opposition party, according to a government official.
Ghanaian officials announced plans to exchange gold for fuel provided by the UAE state-owned company Emirates National Oil Co. earlier. The move comes against a backdrop of a severe shortage in state reserves in the West African country that spends 48% of its imports expenses on fuel every year.The Ghanaian government’s decision to shift away from the US dollar could be considered part of a growing trend to reduce the use of the currency in international payments, Sergio Rossi, professor of macroeconomics and monetary economics at the University of Fribourg, Switzerland, told Sputnik. The US dollar is being increasingly abandoned due to the high impact of global economic shocks and Washington’s monetary policy on developing countries, According to the expert, Ghana is switching to bartering in an attempt to break free from US dollar dominance which has had a negative impact on the country, as well as on the global economy. The impact comes as a “result of the US using the dollar as an economic weapon to satisfy its own interest over the short run.” Rossi noted that the application of such instruments is eventually harmful to America itself, with the global financial crisis of 2008 serving as an example.He added that hard constraints caused by the so-called Washington Consensus between the International Monetary Fund, the World Bank and the US Department of the Treasury have been damaging a number of emerging and developing economies around the globe since the 1980s.
"Ghana’s decision could push other countries, especially developing ones, to get rid of the US dollar, either because they adopt a commodity standard based on gold or some raw materials, or because they enter into a multilateral agreement with their most important trading partners, forming an international clearing union issuing a truly international digital currency," he said.
The professor pointed out that the recent weakening of the Ghanaian cedi currency against the US dollar, leading to a destructive impact for the Ghanaian economy that is facing a debt crisis and record inflation rates, was caused by “increases in the federal funds rate of interest decided by the US Federal Reserve.”The cedi fell by 57% in 2022, “as a result of massive capital flights from Ghana and of a mushroom growth of import prices that have several negative impacts across this developing economy.” This led to a 40.4% rise in inflation in October, with the cost of living increasing alongside fuel prices, while “consumption is suffering, and banks are in trouble in light of the increasing number of non-performing loans in their own balance sheets.” Ghana’s central bank raised borrowing costs by 250 basis points to 27%, which had not happened in almost 20 years.The country’s international reserves likewise shrank from $10.8 billion in October 2021 to $6.7 billion – only enough to cover 2.9 months of oil imports – in the same month a year later.
The professor mentioned that "Ghana’s foreign debt is also problematic, since it is denominated in US dollars that the country is in trouble to refinancing at maturity."
Rossi also noted that the Ghanaian cedi is by far not the only currency affected by the situation, and that other currencies such as the Zimbabwean dollar, the Cuban peso, the Egyptian pound, the Myanmar kyat, and the Sri Lankan rupee also suffered a decline rate due to the Fed’s policy.According to the expert, Ghana’s decision “confirms and supports the new [de-dollarization] trend in the world economy.” He said that developing countries are striving for monetary sovereignty and independence from foreign investors which pursue their own interests when providing foreign economies with US dollars.
"[The Ghana] precedent can have a number of consequences for both emerging and developing economies: after an initial capital flight, a variety of foreign investors can change their mind, once they observe that these economies have a higher rate of growth because of their monetary and fiscal policy independence from the US," Rossi underlined.
The expert asserted that the emerging trend will negatively affect the US fiscal system in the short run. It will lose a significant volume of foreign savings – those will remain in their originating countries or be invested in other countries beyond the US.
According to the professor: "Both the number and the business of US financial institutions will shrink, inducing a reduction of both wage and employment levels in these institutions, which should eventually understand that it is in their own interests to support economic activity within the country’s borders, with regard in particular to small and medium-sized enterprises that contribute to “greening” the economic system for the common good."
In these circumstances, the center of the world economy governance will be split across the globe, creating multipolarity and reducing the asymmety that is observed today, Rossi believes.
"After an initial period during which there will be an increased uncertainty and therefore a higher volatility in some economic magnitudes, such an international distribution of economic governance might benefit all stakeholders, notably because it will reduce geopolitical conflicts and support economic growth in those countries – particularly emerging and developing economies – where to date these conflicts represent a major issue on both social and economic grounds," he said.
Previously, in an interview with Sputnik, Dr. Benedict Pharoe, a South African analyst and a professor at the University of Fort Hare, expressed his view that Africa is a continent that must play a key role in the rebalancing of geopolitical power, noting that BRICS member South Africa acts as an example for African countries that wish to break away from western dominance.In 2022, several states such as Argentina, Iran, Saudi Arabia, Turkey, Egypt, Nigeria and Algeria expressed interest in joining BRICS. They were welcomed by bloc members, including China and Russia. To become a part BRICS, countries need official approval from all five member states.