Stanford Economist cautions African Central Banks on shifting away from dollar, citing risks
In a recent interview with Stanford University’s Joy News, esteemed economist Professor Durrell Duffie, a Senior Fellow at the Hoover Institution, cautioned African central banks, including Ghana’s, against abandoning the US dollar for international trade. Professor Duffie’s remarks shed light on the risks involved in deviating from the established currency and raised concerns about the potential negative impact on national economies.
Ghana, for instance, implemented its ‘Gold for Oil’ policy in November 2022, opting to pay for imported oil products with gold instead of US dollars. Vice President Dr. Bawumia touted the policy as a means to eliminate the need for foreign exchange when importing oil products, but Professor Duffie questioned the viability of such an approach.
The respected economist highlighted the inherent challenges associated with using gold as a currency for international transactions, describing it as an unwieldy and highly volatile medium of exchange. According to Professor Duffie, the fluctuating nature of gold’s value relative to the commodities being traded, notably oil, hampers payment efficiency and increases the risk of value discrepancies between parties involved.
While geopolitical dynamics have prompted some countries, including China and its BRICS allies, to explore alternative reserve currencies backed by gold, Professor Duffie underscored the enduring dominance of the US dollar in global commerce. He argued that the continued quotation of commodity prices in dollars is a testament to its tangible advantages.
Acknowledging the potential geopolitical motivations behind moving away from the dollar, Professor Duffie nevertheless contended that barring significant global economic shifts, countries veering away from the dollar would eventually revert to conducting transactions in dollars. He noted that unless dramatic changes transpire in the global economic landscape, the dollar remains the most pragmatic choice for international payments.
As the world’s foremost reserve currency, the US dollar provides unparalleled liquidity, stability, and universal acceptance in global markets. Professor Duffie’s remarks carry weight given his expertise and affiliation with Stanford University’s prestigious Hoover Institution, underscoring the importance of careful consideration before altering established monetary frameworks.
While the desire to assert geopolitical independence may drive some nations to explore alternative currencies, the potential risks and practical difficulties associated with such transitions warrant serious analysis. As Africa’s central banks navigate this complex terrain, Professor Duffie’s insights serve as a reminder of the dollar’s enduring prominence in the international financial system and the need for careful evaluation of alternative options.
