The increasing dominance of the US dollar is quietly destroying economies around the world leaving millions of people helplessly watching as their local currency loses value again and again, dollarization is reshaping economies around the world in ways that impact people's everyday lives.
The story of dollarization is more than just statistics on a forex screen, it is about people, businesses and real consequences.
Think of dollarization as a game where everyone starts using dollars alongside their local money. While it initially seems helpful because countries can access cheaper foreign currencies, there's a devastating catch. The more people use dollars, the higher the cost it becomes against the local currency, thereby making the currency less valuable. That's exactly what happens during dollarization as the local currency becomes increasingly less valuable while the price of foreign exchange becomes higher.
Nigeria is a perfect case study of this in action. The Nigerian Naira lost value from January 2024 (the date of the last CPI report) and by 25.12% since then. In real terms, if you saved 1.2 million Naira in January (worth about $1,000 then), it is only worth $750 today. That is an awful lot of money you had which evaporated, in addition to food prices in markets across Nigeria exploding. Many people have to spend more of their very low incomes trying to find enough food to eat while their savings decline at a rate faster than a chocolate bar in the sun.
The cascading effects are devastating as companies close because they cannot feasibly afford to stay open. When a company closes, employees lose their jobs. This starts a domino effect which is growing into a landslide of unemployment. With unemployment comes a spike in crime rates as people get desperate to feed their families.
Business owners find themselves caught between a rock and a hard place - unable to get dollars through official channels anymore, they turn to the black market (the "Abokis" as they're known in Nigeria). While they can get dollars there, it comes at a much higher cost, which ultimately gets passed on to everyday consumers through even higher prices.
The numbers paint a grim picture. Last year, when Nigeria's Central Bank was actively defending the Naira, one dollar cost between 750 to 850 Naira. Now it's skyrocketed to between 1,500 to 1,530 Naira. That's not just a number, it's the difference between making ends meet and going hungry for many families. But amid this financial chaos, there are ways to protect yourself.
Cryptocurrency, particularly Bitcoin and other established crypto coins, offers one lifeline. Think of them as digital gold - something that can hold its value when your local currency can't. While not perfect, they've proven to be a reliable shelter from the storm of inflation. Stablecoins present another option; these digital currencies tied to the US dollar, like USDC and USDT, function like having digital dollars in your pocket. They are stable, easy to use, and most importantly, they are not at the mercy of local banking systems.
The stark reality is that dollarization has become a wrecking ball for so many African economies, creating poverty where there was previously progress and misery where there was previously hope. The situation continues to grow to new lows in Nigeria, with little in terms of bottom, but knowledge is power and knowledge of your options is critical.
It is important to take action, whether it be exploring cryptocurrencies, stablecoins, or a hybrid of the two. Do not let economic madness, in the form of inflation, destroy your hard work and hard earned money, the time to act is now, before the currency you are relying on diminishes even more.
Despite the tragedy that plays out every day for countries that depend on dollarization as a status quo, the dollarization story does not have to be your story, nor is it your personal financial tragedy.
The key is understanding the problem, and activating the solutions that are available to you, whether that be crypto, stablecoins or other assets which can protect your wealth and secure your financial future amid the backdrop of an ever-declining cost of living.
The image used is AI generated.