The year was 1944 and representatives from 44 countries had, in the United Nations Monetary and Financial Conference held in Bretton Woods, New Hampshire, agreed that other currencies should be pegged to the value of the US dollar while the dollar was pegged to gold.
Although this decision, which came to be known as the Bretton Woods Agreement was ended by President Nixon, the US dollar continued to be the dominant global currency for several decades, but its status is now being challenged by several factors.
According to the International Monetary Fund (IMF), as of 2021, the US dollar still accounts for roughly 59% of global foreign exchange reserves, making it the most widely held reserve currency in the world.
However, this is its lowest level in 25 years as it is down from a peak of around 71% in the early 2000s.
At the same time, the euro has been gaining ground, accounting for around 20% of global reserves, up from just 18% in the early 2000s.
The Japanese yen, British pound, and Swiss franc also account for significant portions of global reserves.
One major reason for the decline in the dollar’s global status is the rise of China.
China is the world’s second-largest economy, and its currency, the yuan, has been gaining ground in recent years.
In 2020, the yuan accounted for around 2% of global reserves, up from just 1% in 2016.
While this may seem like a small percentage, it represents a significant increase in the use of the yuan as a global currency.
Another country is Russia, the world’s largest exporter of natural gas.
After it had economic sanctions imposed against it due to its invasion of Ukraine, reports indicate that the Russians have been partnering with the Chinese government to establish cooperation between their financial systems with ruble-yuan trade increasing eighty-fold from February to October 2022.
Another factor is the growing use of cryptocurrencies, such as Bitcoin, Ethereum, and others.
These digital currencies operate independently of traditional banking systems and are not backed by any government or central authority.
While their use is still relatively small compared to traditional currencies, they are growing in popularity and have the potential to disrupt the global financial system.
A Forbes report, quoting a Russian news site, had cited that Russia and Iran are collaborating to create a gold-backed cryptocurrency.
Furthermore, state banks (particularly those in Russia and China) have purchased gold at the fastest rate since 1967 as nations seek to diversify their assets away from the currency.
The changing status of the US dollar has significant implications for Nigeria’s economy and financial stability.
As a country that relies heavily on imports, Nigeria could face challenges if the dollar loses its status as the global reserve currency.
It could become more difficult and expensive for the country to import goods, and this could lead to inflation and other economic challenges.
How Nigeria Could Be Affected
Nigeria is a major player in the global economy, and as such, any significant change in the global financial system could have significant implications for the country.
With the changing status of the US dollar, Nigeria could face several challenges that could impact its economic stability.
As everyone would admit, Nigeria is a country that relies heavily on imports, so any disruption in the global financial system could have a significant impact on the country’s economy.
If the US dollar loses its status as the global reserve currency, it could become more difficult and expensive for Nigeria to import goods, which could lead to inflation and other economic challenges.
In addition to the impact on imports, Nigeria’s oil exports could also be affected.
Nigeria is one of the largest oil-producing countries in the world, and oil exports account for a significant portion of our GDP.
If the US dollar loses its status as the global reserve currency, it could lead to a decline in the value of the dollar, which could, in turn, lead to a decline in the price of oil.
This could have a significant impact on Nigeria’s economy and could lead to reduced revenue from oil exports.
Furthermore, a shift away from the US dollar could also impact Nigeria’s ability to borrow money from international markets.
Currently, many international loans are denominated in US dollars, and if the dollar loses its status as the global reserve currency, it could become more difficult and expensive for Nigeria to borrow money from international markets.
This could lead to a reduction in investment and could slow down economic growth.
Finally, a shift away from the US dollar could also impact Nigeria’s currency, the naira.
The naira is currently pegged to the US dollar, and any significant changes in the value of the dollar could impact the value of the naira.
If the US dollar loses its status as the global reserve currency, it could lead to a decline in the value of the dollar, which could, in turn, lead to a decline in the value of the naira.
The CBN holds significant reserves of US dollars to maintain the exchange rate.
This can make the Nigerian economy vulnerable to some of these fluctuations in the global financial system.
For example, if there is a global shortage of US dollars, it could become more difficult and expensive for the CBN to maintain the exchange rate, which could lead to a decline in the value of the naira.
As Nigeria prepares for the possibility of such a future, it will need to consider these factors and take steps to diversify its economy, strengthen its currency, and embrace new technologies such as Web3 to create a more stable and secure financial system.
Can Web3 Help Bring Stability?
Web3 technology has the potential to bring stability to Nigeria’s financial system by providing a decentralized and secure platform for financial transactions.
Web3 technology is based on blockchain, a decentralized ledger that records transactions in a secure and transparent way.
One of the key advantages of Web3 technology is that it can provide a secure and transparent platform for financial transactions without the need for intermediaries such as banks.
This can reduce transaction costs and increase efficiency, making it easier for people to access financial services and participate in the economy.
In addition, Web3 technology can help to create a more stable financial system by providing a decentralized platform for the issuance of digital currencies.
Digital currencies, such as cryptocurrencies, are not tied to any particular country or currency, which means that they are not subject to the same fluctuations and volatility as traditional currencies.
Moreover, the use of Web3 technology can help to create a more inclusive financial system by providing access to financial services for people who may not have had access before.
For example, people in remote areas with limited access to traditional banking services could use Web3 technology to access financial services.
Furthermore, Web3 technology can provide greater transparency and accountability in financial transactions, which can help to prevent fraud and corruption.
By recording transactions on a decentralized ledger, it becomes more difficult for bad actors to manipulate financial systems for their gain.
One example of how Web3 technology is already being used in Nigeria is through the creation of digital wallets.
Digital wallets are online platforms that allow users to store and manage their digital assets, including cryptocurrencies.
This can help to promote financial inclusion by providing access to financial services to people who may not have had access before.
Thankfully, some Nigerian startups are already using Web3 technology to create decentralized lending platforms, which can provide access to loans and other financial services to people who may not be able to get them from traditional banks.
Yet, we’re still a long way from where we need to be in terms of adoption.
What Moves Should Nigeria Make?
Given the potential impact of a shift away from the US dollar on Nigeria’s economy, the country needs to take proactive steps to mitigate the potential risks and capitalize on the opportunities presented by new technologies such as Web3.
One important step that Nigeria could take is to diversify its economy and reduce its dependence on oil exports.
Oil exports currently account for a significant portion of Nigeria’s foreign exchange earnings, which makes the country vulnerable to fluctuations in the global oil market.
By diversifying its economy and developing other sectors such as agriculture, manufacturing, and services, Nigeria can reduce its reliance on oil and create a more resilient economy.
Another important step is to promote the development and adoption of new financial technologies such as Web3.
By encouraging the growth of a vibrant Web3 ecosystem, Nigeria can position itself as a leader in this emerging field and capitalize on the opportunities presented by new technologies.
To this end, the government could provide incentives for startups and entrepreneurs working in the Web3 space, such as tax breaks or grants for research and development. The government could also work to create a favorable regulatory environment for Web3 technologies, which could help to attract investment and talent to the country.
Moreover, Nigeria could invest in education and training programs to develop the skills needed to work in the Web3 industry.
This could help to create a pool of talented developers and entrepreneurs who can help to drive innovation and growth in the sector.
Finally, Nigeria could work to develop partnerships and collaborations with other countries and organizations that are working on Web3 technologies.
By working together, Nigeria can share knowledge and expertise, leverage resources, and create new opportunities for collaboration and growth.
Undeniably, the current pegging of the naira to the dollar makes Nigeria vulnerable to fluctuations in the global currency market, which could have significant impacts on the country’s economy.
To prevent this, it is important for both the government and individuals to take action.
The government can provide incentives for startups and entrepreneurs working in the Web3 space, create a favorable regulatory environment for Web3 technologies, and invest in education and training programs to develop the skills needed to work in the Web3 industry.
Moreover, the government can work to diversify the economy and reduce the country’s dependence on oil exports.
Individuals can also play a role in promoting the growth of Web3 technologies and building a more resilient economy.
By supporting startups and entrepreneurs working in the Web3 space, advocating for favorable regulatory policies, and investing in education and training programs, individuals can help to create a vibrant Web3 ecosystem and position Nigeria as a leader in this emerging field.
Additionally, individuals can also support efforts to diversify the economy by investing in other sectors such as agriculture, manufacturing, and services.
In summary, the global shift away from the US dollar presents both challenges and opportunities for Nigeria’s economy.
Nigeria, on the other hand, can position itself to withstand these changes and emerge more robust by taking proactive measures to support the development of Web3 technologies, diversify the economy, and engage in education and training.
Individuals and the government both have a part to play in achieving these goals and by working together, we can build a better future for Nigeria and its people.
