Rejection of U.S. Dollars Has Even Spread to Africa. Dollars Not Wanted.

Most of the reports of countries abandoning the U.S. dollar as a payment currency for part or all of their exports and imports involve large developing economies such as China, Russia, Brazil, Dubai, Saudi Arabia, Turkey, and Iran. New reports arrive daily, including a new comprehensive agreement between China and Brazil to use their local currencies for payments in trade for soybeans, oil, sugar, aircraft, semiconductors, and manufactured goods.

There are other bilateral deals involving OPEC members accepting Chinese yuan for shipments of oil. But the desire to abandon U.S. dollars for use in many forms is not limited to those large trading relationships. Even relatively small economies such as Kenya have now joined the anti-dollar crusade, as explained in this article.

In the past, Kenya valued the dollar as a means of payment for Kenyan exports such as coffee and in its valuable tourism sector. As a result, many Kenyan individuals and enterprises have hoarded dollars, often in physical form as $100 bills, because of their perceived value and as a hedge against the devaluation of the local currency, the Kenyan shilling.

Now the government is declaring war on the hoarders and the dollar itself. The government has announced plans to allow oil importers to use shillings to pay for the oil. These new arrangements will eliminate the need for dollars in much of the economy since the oil sector represents 30% of Kenyan imports.

At the same time, the government is trying to flush out hoarders. For the time being, this is being done on a voluntary basis. The government is saying since the economy will need fewer dollars as a result of the new shilling arrangements, there is less reason for the private sector to hoard dollars.

Beyond the invitation to the hoarders to cash in their dollars is an implied threat that the government will either seize the dollars or make them non-convertible in the near future. The president of Kenya said, “I am giving you free advice that those of you who are hoarding dollars, you shortly might go into losses. You better do what you must do because this market is going to be different in a couple of weeks.”

The president did not define what he meant by “different”, but the threat of confiscation is a reasonable inference. The move away from dollars is visible everywhere, even in the backstreets of Nairobi.

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