Kenyan President William Ruto has called on African leaders to take a significant step towards reducing dependence on the United States (US) dollar by joining a pan-African payments system.
Ruto urged his counterparts to mobilize central and commercial banks to sign up for the Pan-African Payments and Settlement System (PAPSS), launched in January 2022.
Developed by the African Export-Import Bank (Afreximbank) and the African Continental Free Trade Area (AfCFTA) Secretariat, this system aims to facilitate trade within the continent by allowing traders to transact in local currencies and rely on Afreximbank to handle the currency exchange.
The move seeks to address challenges faced by African traders and local banks when using correspondent banks in the US and Europe to complete payments, which often result in delays, additional charges, and currency fluctuations.
The current reliance on the US dollar for intra-African trade has led to various complications, including lengthy processing times and high fees.
The use of correspondent banks to convert African currencies into dollars or euros for payment adds unnecessary layers to the process, causing delays of three to five days. Importers, such as oil marketers and manufacturers, have experienced difficulties due to a mismatch between the demand and supply of US dollars, leading to inflated prices and strained relations with suppliers.
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To alleviate these challenges, President Ruto proposes a single payment platform, such as the one developed by Afreximbank, which would simplify and streamline transactions, allowing businesses to focus on moving goods and services rather than navigating currency issues.
The push to move away from the US dollar in African trade comes as Kenya and other nations in the region face economic pressures, including inflation and limited foreign currency supply.
The Kenyan shilling has depreciated by approximately 12.1% against the dollar since the beginning of the year, resulting in higher prices for key inputs like fuel and raw materials. President Ruto believes that a single payment platform would help eliminate the need for intermediary financial institutions and mitigate complications, unnecessary costs, and currency fluctuations. The adoption of the pan-African payments system could pave the way for increased intra-African trade and foster economic growth across the continent.
