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There is a renewed focus on de-dollarization in Africa to replace the Greenback as the transaction medium. Africa, facing various problems because of the steady erosion of local currencies against the dollar is innovating methodologies to trade in local currencies maximum, particularly for the intra-trade.
There is a renewed focus on de-dollarization in Africa to replace the Greenback as the transaction medium. Africa, facing various problems because of the steady erosion of local currencies against the dollar is innovating methodologies to trade in local currencies maximum, particularly for the intra-trade.
The platform, Pan-African Payment and Settlement System (PAPSS), offers an alternative in which countries can conduct transactions in their currencies, eliminating the necessity for a third-party currency such as the US dollar. Analysts say there is huge potential for intra-African trade to grow. Unlike the use of dollars, which African countries do not have control over, transactions in local currencies allow trade to use local currencies, where they can set exchange rates.
It can boost intra-African trade, fortify the continent’s currencies, and increase the country’s tax revenues through goods and services. The continent’s trade bloc, the African Continental Free Trade Area (AfCFTA), estimates that PAPSS can save Africa US$5 billion a year in fees and compliance costs alone.
Traders will be able to transact within the continent using local currencies. For example, a Tanzanian trader will be able to pay for a product in Rwanda with Tanzanian shillings, but the recipient in Rwanda will receive money in Rwandan francs. The payment platform will be adopted by the African Union’s Assembly of Heads of State and Government in February 2024.
The AfCFTA, which unites the 55 members of the African Union (AU) and eight Regional Economic Communities (RECs), is the largest free trade area in the world. It has the overarching goal of establishing a single continental market with a combined GDP of around US$3.4 trillion and a population of over 1.3 billion. However, data shows that while the share of intra-continental trade in Europe, Asia, and North America stands at 67 percent, 56 percent, and 50 percent, respectively, the same stands at only 13 percent in Africa. Over 80 percent of intra-African payments currently go through either Europe or the United States, with African countries spending as much as US $5 billion in fees and compliance costs.
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The PAPSS platform, designed by the African Export-Import Bank (Afreximbank) and supported by the AU, allows a trader to tell her or his local bank to pay a supplier in another country in the local currency. According to Afreximbank, the system will be regulated by central banks, and once countries accept it, all commercial banks will be able to use it.
