Adventures in Multipolarity: The African Peace Mission and the US Dollar

Unpopular Opinion No. 1

This post is the first of what I hope will be many Unpopular Opinions I’m working on for this new article series. While the weekly Global News Roundups are designed to keep readers up-to-date about what’s going on in the world in a ‘just the facts’ kind of style, this new series is for opinion pieces making unorthodox arguments not commonly found in mainstream publications. As always, your feedback is much appreciated. Reply in the comment section to share suggestions and questions, or email me privately to chat. I’ll respond as quickly and fully as I can. Thanks for reading and sharing!

When the President of South Africa announced last Tuesday the commencement of a peace mission to Europe to try to end the war in Ukraine, the discussion that erupted in the press and on social media naturally centered on the war and the possibilities of success such a mission might have. But one of my first thoughts was of the fate of the US dollar. This is because the push for peace in Ukraine and against the dollar are both symptoms of a broader shift in the international balance of power, away from a unipolar system dominated by the US and towards a multipolar system in which more evenly matched states compete for power and resources on the global stage.

For years, the Western presses have been debating whether de-dollarization is possible and, if so, when we can expect the dollar to be replaced by something else and what that something else might be. Maybe the yuan, say some, or maybe gold, say others, or maybe crypto, or IMF special drawing rights, or…. The tendency to frame the discussion as a head-to-head competition between the dollar and something else, suggesting some sort of foreign exchange cage match, is foreclosing discussion of what is, in reality, the most likely outcome for King Dollar.

The news about the African peace mission is helpful for thinking about the international trade and monetary landscape emerging in real time over the past few years. The delegation is comprised of representatives from six nations—South Africa, Egypt, Uganda, Senegal, Zambia, and the Republic of Congo—and is slated to meet soon with Ukrainian President Zelensky in Kyiv and Russian President Putin in Moscow. South African President Ramaphosa noted he had briefed UN Secretary General Antonio Guterres on the issue, and that he had also received “cautious” support for the initiative from the US and UK.

(Image: Ugandan Foreign Minister Odongo Jeje Abubakhar, left, and Russian Foreign Minister Sergey Lavrov enter a hall for their talks in Moscow, Russia, Thursday, May 18, 2023. Kirill Kudryavtsev - pool, Pool AFP, here).

These six nations are not the only ones that have offered to mediate a truce in Ukraine or suggest terms for a peace settlement. Turkey mediated early negotiations between Ukraine and Russia in late February and March 2022, right after the war began. China has been trying to grow support for its own peace plan, with a Chinese envoy visiting leadership in Europe last week to encourage their participation. Spanish Prime Minister Pedro Sanchez is hoping to facilitate peace, in part by encouraging US President Biden to agree to peace negotiations and “listen” to the voices of non-Western countries that have suffered mightily from the war. Brazilian President Lula recently offered to mediate between parties to the conflict, Pope Francis recently disclosed his own “secret peace mission”, and a report from Wednesday indicated that Eastern European countries such as Poland and Hungary are moving behind the scenes to bring Zelensky to the negotiating table. In other words, lots of different countries and international actors are working, sometimes together and sometimes alone, to facilitate progress on a deep and abiding mutual interest in ending the proxy war between the US and Russia.

This week’s news clearly demonstrated that this multipolar peace strategy for Ukraine is bearing fruit, with the US and its allies in Europe now finding themselves uncomfortably boxed in by other nations. The US announced last Wednesday, the day after the news of the African mission broke, that it is working with the G7 to plan a Ukraine peace summit, and on Thursday that it is entertaining a “freeze” of the conflict. When the G7 met over this past weekend, Ukrainian President Zelensky also attended and discussed the terms of a possible peace with G7 leadership. While it is surely not the only reason the US-led coalition is slowly and gradually embracing diplomacy, the political encirclement of the West by non-Western nations demanding peace is an important contributing factor.

The situation is much the same for the dollar. Other countries are working, sometimes together and sometimes alone, to facilitate progress on a deep and abiding mutual interest in ending the dollar’s global hegemony and creating a new kind of global trade and financial system that works better for them. Much as the push for peace in the Ukraine is coming from many different quarters, so too is competition with the dollar. The two trends are closely related, not only because they spring from the same structural source (i.e., the transition to a multipolar international order), but also because the Ukraine war galvanized cooperation among non-Western states.

Sanctions on Russia raised the risks for other countries of using dollars in international trade (trade in dollars is easily sanctioned by the US, while trade in non-Western currencies is not), and recent seizures of Russian assets by Western banks for Ukraine reparations and rebuilding has only expedited the dollar’s decline. Who wants to keep dollar and euro assets in Western banks if they’re going to be seized in the future as punishment? Best to hold other kinds of assets in other kinds of banks in other places.

The Ukraine war also aggravated food and energy price inflation, and global food and energy has since WWII mostly been priced and conducted in US dollars. So, when food and energy prices skyrocketed beginning in March 2022, and then the US starting hiking interest rates shortly thereafter, there was a massive twin economic shock especially for the poorest economies that rely on imported food and energy priced in dollars—prices rose from the war, and then rose some more as local currencies depreciated against the dollar. The UN Committee on Trade and Development (UNCTAD) refers to the “double burden” this created for some of the world’s poorest people, some of whom live, uncoincidentally, in the very same African countries that make up the peace mission to Ukraine. Here, too, dumping the dollar just makes good sense. Why not trade food and energy with neighbors and allies in local currencies, thus avoiding having to shoulder such a heavy burden in the future?

Since the Ukraine war began, the yuan has replaced the dollar in China’s cross-border trade, Brazil is discussing a common currency with Argentina, China and Brazil are trading in reals and yuan, India and Russia are trading in rubles and rupees, Iraq is reducing use of the dollar partly so it can trade with its sanctioned neighbor Iran, Zimbabwe introduced gold coins, and El Salvador is using bitcoin as legal tender, just to cite a few examples.

So, what will replace the dollar? The news about the African peace delegation suggests that, at least for the time being, the dollar won’t be replaced, but rather subjected to pressure and competition from a lot of international currency alternatives, diluting its value and utility over time.  In other words, the dollar won’t be replaced by the currency of a single other superpower. Rather, it will be boxed in, and its power eroded, by Chinese yuan, Indian rupees, Russian rubles, gold, Brazilian reals, South African rand, silver, Bitcoin, Ethereum, Pepecoin, Iranian rials, Saudi dinars, and…

This is how the world works now. The US should get used to it.