In September 1985, the world’s leading economies gathered at New York’s Plaza Hotel to confront a shared crisis: the U.S. dollar had grown so strong it threatened to derail global growth. The resulting Plaza Accord —a coordinated effort to weaken the dollar—became a landmark of international cooperation. Today, the dollar’s resurgence is even more potent, but the geopolitical landscape is fractured, debt levels are staggering, and the tools to manage this crisis are politically toxic. The stakes? Nothing less than the dollar’s dominance, America’s borrowing power, and the stability of the global financial system. If history is any guide, the strong dollar is not a badge of strength but a ticking time bomb. And this time, the fallout could redefine the 21st-century economic order—with devastating consequences for developing economies, particularly in Africa. Rwanda is not spared. A strong dollar acts like a tax on U.S. exports. When the dollar appreciates, foreign buyers need more of their own currency to purchase American goods—whether soybeans, semiconductors, or Boeing jets. The result? U.S. exporters lose market share to rivals in Europe, Japan, or China. In 2023, the U.S. trade deficit ballooned to nearly $1 trillion, exacerbated by a dollar that has surged 20% against major currencies since 2021. While cheap imports may temporarily placate consumers, the long-term erosion of manufacturing and export capacity weakens America’s economic backbone. Corporate casualties are already emerging. Companies like Caterpillar and Pfizer have cited the dollar’s strength as a drag on earnings. Even tech giants like Apple, which derives 60% of its revenue overseas, face profit margins squeezed by unfavorable exchange rates. When corporate earnings falter, stock markets wobble—and with equities still near record highs, the vulnerability is acute. The dollar’s dominance isn’t just America’s problem—it’s a global liability. Emerging markets borrow in dollars to fund growth, but when the dollar rises, their debt burdens explode. Countries like Turkey, Argentina, and Pakistan now spend over 50% of government revenue servicing foreign debt. Corporate borrowers in India, Brazil, and Southeast Asia face similar strains. This dynamic mirrors the 1997 Asian Financial Crisis, when dollar-denominated debt defaults triggered a regional meltdown. Today, the risks are systemic: Over $80 trillion in global debt is dollar-linked. A wave of defaults could freeze credit markets, spur capital flight, and ignite contagion. For Africa, the strong dollar is particularly perilous. Many African nations rely heavily on dollar-denominated debt to finance infrastructure, healthcare, and education. According to the World Bank, sub-Saharan Africa’s external debt stood at $702 billion in 2023, with a significant portion owed in dollars. As the dollar strengthens, the cost of servicing this debt skyrockets, diverting scarce resources away from critical development projects. Countries like Ghana, Zambia, and Kenya are already struggling with debt distress, and a stronger dollar could push them closer to default. The Federal Reserve is trapped. To curb inflation, it raised interest rates aggressively—a key driver of the dollar’s rise. But now, with growth slowing and the dollar stifling exports, the Fed faces pressure to cut rates. The problem? Lower rates could weaken the dollar but also reignite inflation or trigger a bond market panic. Meanwhile, countries like Japan and China are actively weakening their currencies to support exports, creating a vicious cycle. The euro, yen, and yuan have all hit multi-decade lows against the dollar, raising the specter of currency wars —a race to the bottom where no one wins. What does this mean for African economies? This currency volatility is a double-edged sword. On one hand, a weaker local currency makes exports more competitive—a potential boon for commodity-dependent nations like Nigeria (oil) and South Africa (minerals). On the other hand, it increases the cost of imports, from fuel to pharmaceuticals, exacerbating inflation and squeezing household budgets. In countries like Nigeria, where inflation is already in double digits, a stronger dollar could deepen economic hardship and social unrest. Donald Trump’s return to the White House looms large over this crisis. His first term saw tariffs on $300 billion of Chinese goods, threats to label China a currency manipulator, and public bullying of the Fed to cut rates. A second term could escalate these tactics—with perilous consequences. Trump’s proposed 10% across-the-board tariff on imports would act as a tax on consumers and businesses, exacerbating inflation. Retaliatory measures from trading partners would further disrupt supply chains, particularly in critical sectors like semiconductors and clean energy. Worse, tariffs could accelerate de-dollarization. China, already reducing its Treasury holdings, might retaliate by dumping dollars or pricing commodities like oil in yuan. Russia, sanctioned and isolated, has already shifted to the yuan for 80% of its trade with China. If the dollar becomes a geopolitical weapon, its role as a neutral medium of global trade erodes. For Africa, this geopolitical tug-of-war presents both risks and opportunities. On one hand, U.S.-China tensions could disrupt trade and investment flows, particularly in infrastructure projects funded by China’s Belt and Road Initiative. On the other hand, African nations might find themselves courted by both sides, leveraging their strategic importance to secure better terms. However, this balancing act is fraught with peril. Aligning too closely with one bloc could invite retaliation from the other, while attempting neutrality risks alienating both. For now, markets remain complacent, pricing in a “soft landing” where the Fed tames inflation without triggering a recession. But the strong dollar’s second-order effects could upend this optimism. Since World War II, the dollar’s role as the world’s reserve currency has granted the U.S. unrivaled privileges: cheap borrowing, control over global payment systems, and geopolitical leverage. But cracks are emerging. Foreign governments now hold just 59% of reserves in dollars, down from 71% in 2000. China’s yuan, though still small, is gaining traction in trade settlements. Digital currencies like China’s digital yuan and the ECB’s digital euro could bypass dollar-based banking systems. Even Bitcoin is increasingly framed as a “hedge against dollar hegemony.” Saudi Arabia now accepts yuan for oil, and BRICS nations are exploring a gold-backed trading currency. These trends won’t unseat the dollar overnight, but they signal a slow-motion revolt against its dominance. For Africa, the shift away from dollar dominance could be transformative. A multipolar currency system might reduce the continent’s vulnerability to dollar volatility and provide greater flexibility in trade and financing. However, the transition would be fraught with challenges. African nations would need to navigate competing currency blocs, build robust financial infrastructure, and manage the risks of adopting new digital or commodity-backed currencies. The U.S. relies on foreign investors to finance its $34 trillion debt. But as the dollar rises, those investors face losses when converting interest payments back to their local currencies. If Japan or China—the largest foreign holders of Treasuries—decide to reduce exposure, U.S. borrowing costs would surge, destabilizing everything from mortgages to corporate loans. In 2022, the Bank of England intervened to rescue U.K. pension funds after the pound collapsed. A similar crisis could unfold if dollar strength triggers margin calls or fire sales in overleveraged markets. The dollar’s role as the world’s “safe haven” means its surge often coincides with panic—a perverse feedback loop. For Africa, this global instability could have dire consequences. A liquidity crunch in developed markets would dry up capital flows to the continent, stalling investment and growth. Countries with weak fiscal positions and high debt levels would be particularly vulnerable, risking a cascade of defaults and economic collapse. A coordinated effort to stabilize currencies is possible but politically fraught. China and the U.S. are unlikely to collaborate openly, but behind-the-scenes deals might avert disaster. Alternatively, if Trump escalates trade wars and the Fed hesitates to cut rates, the U.S. could face 1970s-style stagflation: stagnant growth, persistent inflation, and social unrest. Emerging markets would buckle, and populism would surge globally. The dollar’s share of global reserves could drop below 50% within a decade, replaced by a patchwork of digital currencies, gold, and regional blocs. For the U.S., this would mean higher borrowing costs, reduced influence, and a loss of control over economic sanctions. The strong dollar is a silent crisis—one that markets and policymakers are dangerously underestimating. Unlike 1985, there’s no united front to address it, only escalating nationalism and a fraying global order. For the U.S., the path forward demands humility: recognizing that weaponizing the dollar or ignoring allies could backfire catastrophically. For investors, diversification is no longer optional—it’s a survival strategy. Gold, cryptocurrencies, and non-dollar assets will gain appeal as hedges against volatility. For Africa, the stakes are even higher. The continent stands at a crossroads, caught between the dollar’s dominance and the rise of alternative currencies. The choices made by African leaders in the coming years—whether to embrace diversification, strengthen regional integration, or navigate the geopolitical minefield—will shape the continent’s economic future. The dollar’s reign will not end with a bang but with a whimper—a slow erosion accelerated by hubris and shortsightedness. The question is whether America will adapt to this new reality or cling to the past until it’s too late.
