site banner
PaperclipPerfector  1mo ago (text post)   1181 thread views

Transnational Thursday for June 19, 2025

Transnational Thursday is a thread for people to discuss international news, foreign policy or international relations history. Feel free as well to drop in with coverage of countries you’re interested in, talk about ongoing dynamics like the wars in Israel or Ukraine, or even just whatever you’re reading.

1
Top Bottom Old Controversial Comments
Jump in the discussion.

No email address required.

Very interesting article: Under shadow of Trump warning, Africa pioneers non-dollar payments systems

Africa's push for local currency payments systems, once little more than an aspiration, is finally making concrete gains, bringing the promise of less costly trade to a continent long hobbled by resource-sapping dollar transactions.

The move by Africa to create payments systems that do not rely on the greenback mirrors a push by China to develop financial systems independent of Western institutions. Countries like Russia, which face economic sanctions, are also keen for an alternative to the dollar.

But while that movement has gained a sense of urgency due to shifting trade patterns and geopolitical realignments following President Trump's return to the White House, African advocates for payment alternatives are making their case based on costs.

"Our goal, contrary to what people might think, is not de-dollarisation," said Mike Ogbalu, chief executive of the Pan-African Payments and Settlements System, which allows parties to transact directly in local currencies, bypassing the dollar.

Africa's commercial banks typically rely on overseas counterparts, through so-called correspondent banking relationships, to facilitate settlements of international payments. That includes payments between African neighbours.

That adds significantly to transaction costs that, along with other factors like poor transport infrastructure, have made trade in Africa 50% more expensive than the global average, according to the UN Trade and Development agency.

It is also among the reasons so much of Africa's trade—84%, according to a report by Mauritius-based MCB Group—is with external partners rather than between African nations.

According to data compiled by PAPSS, under the existing system of correspondent banks, a $200 million trade between two parties in different African countries is estimated to cost 10% to 30% of the value of the deal.

The shift to homegrown payments systems could cut the cost of that transaction to just 1%.

Using currencies like the Nigerian naira, Ghanaian cedi or South Africa's rand for intra-Africa trade payments could save the continent $5 billion a year in hard currency, Ogbalu told Reuters.

Launched in January 2022 with just 10 participating commercial banks, PAPSS is today operational in 15 countries including Zambia, Malawi, Kenya and Tunisia, and now has 150 commercial banks in its network.

It is understandable that they may have different interests than the US, and thus want a monetary system that can not be controlled by the US. The question is, who will be controlling it then? Somehow I doubt it being controlled by Zambia or South Africa or any other African state would be better for the long-term perspectives of it, and in general African states - especially ones that are located close and thus most in need of common currency system - aren't best known for always valuing cooperation over conflict. Of course, they could elect China or Russia or Iran to be their master - but why exactly would that play better for them than the US?

They could try to implement a truly decentralized zero-trust system, but given as nobody really done it on the national scale, I'm not sure they have the expertise or the guts to try it. Would be an interesting experiment though, but there are so many failure modes there that it could only be of any value if successful.

a $200 million trade between two parties in different African countries is estimated to cost 10% to 30% of the value of the deal.

That sounds horrendously expensive. I wonder is that because of the risks? Then of course homegrown systems would be cheaper - by just ignoring the risks, until the next rugpull.

It is understandable that they may have different interests than the US, and thus want a monetary system that cannot be controlled by the US.

This is just a payment-processing system, not a whole new currency.

The question is, who will be controlling it, then?

PAPSS's governing council appears to be populated by the top officials of the central banks of its member countries. PAPSS operates under the auspices of the African Export–Import Bank, whose board of directors likewise is composed of various central banks' top officials.

This is just a payment-processing system, not a whole new currency.

Yes, but if the processing system uses dollars and US banks (or banks that eventually connect to US banks) then US can control it. Dealing with a ton of different currency without having an intermediary one where you can align everything to the single common measure could be challenging...

PAPSS's governing council appears to be populated by the top officials of the central banks of its member countries.

Yes, of course, but what happens if there is a conflict between them? Say, one government has a lucrative trade in goods that are frowned upon by other governments, and wants to use this system to facilitate it? What if two members have a fight and try to block (or steal) each other's payments?

Yes, but if the processing system uses dollars and US banks (or banks that eventually connect to US banks) then US can control it. Dealing with a ton of different currency without having an intermediary one where you can align everything to the single common measure could be challenging...

The other point is that if the actors using the system also want to use dollars and US banks separately, the US can still influence it. This is why the attempted Iran-EU exchange program died after the JCPOA fell apart. The Europeans mooted building what would basically have been shell companies to serve as intermediaries who would never touch dollars for Iran-EU trade, and the US simply moved the threat of secondary sanctions to any European companies that did work with the shell companies doing work with Iran.

This is part of the classic misunderstanding of the influence of the dollar in the international system. It doesn't actually matter if you use dollars in the transaction. Dollars are just a lower transaction cost medium of exchange, but everyone already had the ability to pay a higher transaction cost if they wanted to do currency swaps and such. What matters if you also, elsewhere, want to do business with the dollar system.

What happens if there is a conflict between them?

The linked PAPSS page mentions bylaws, but they do not appear to be posted publicly. Afreximbank's charter (art. 17) states that a dispute between the bank and a member is resolved by a vote of the shareholders (i. e., the members), while a dispute between the bank and a former member is resolved by arbitration.

I mean the big flaw in this seems to be that no one in their right mind actually wants a generic sub-saharan African currency. The CFA franc is still in use for a reason.

This company merely provides a method of sending money in different existing non-dollar currencies between different countries, without having to use overseas banks as expensive intermediaries. It has nothing to do with creating a hypothetical new currency as a competitor to the dollar.

Systems like PAPSS allow a business in one country (for example, Zambia) to pay for goods from another (like Kenya) with both buyer and seller receiving payment in their respective currencies rather than converting them into dollars to complete the transaction.

Yeah, wouldn't the kenyan far rather dollars than shillings?

This system is for transactions, not for savings. Sending money all the way to a European or Asian bank, and converting it to and from US dollars just so that it can cross a single border within Africa, adds a bunch of extra delay and extra fees.

Delay isn't mentioned in the news article, but an FAQ page on PAPSS's website says:

With Instant payment, participants no longer need to convert local currencies into hard currencies which then entailed the funds leaving Africa to be converted before being sent back again to the beneficiary bank—adding days to the transaction time. In addition, compliance, legal and sanctions checks are performed instantly within the system. Near-instant payments process within 120 seconds.

I think the first one is that transaction costs in Africa are 1.5x transaction costs in not-Africa, although it's misleadingly worded.

I will also note that "X costs 1.5x what it should" = "1/3 the cost of X is unnecessary".

Okay, I'm also confused now.

What is this place?

This website is a place for people who want to move past shady thinking and test their ideas in a court of people who don't all share the same biases. Our goal is to optimize for light, not heat; this is a group effort, and all commentators are asked to do their part.

The weekly Culture War threads host the most controversial topics and are the most visible aspect of The Motte. However, many other topics are appropriate here. We encourage people to post anything related to science, politics, or philosophy; if in doubt, post!

Check out The Vault for an archive of old quality posts. You are encouraged to crosspost these elsewhere.


Why are you called The Motte?

A motte is a stone keep on a raised earthwork common in early medieval fortifications. More pertinently, it's an element in a rhetorical move called a "Motte-and-Bailey", originally identified by philosopher Nicholas Shackel. It describes the tendency in discourse for people to move from a controversial but high value claim to a defensible but less exciting one upon any resistance to the former. He likens this to the medieval fortification, where a desirable land (the bailey) is abandoned when in danger for the more easily defended motte. In Shackel's words, "The Motte represents the defensible but undesired propositions to which one retreats when hard pressed."

On The Motte, always attempt to remain inside your defensible territory, even if you are not being pressed.


New post guidelines

If you're posting something that isn't related to the culture war, we encourage you to post a thread for it. A submission statement is highly appreciated, but isn't necessary for text posts or links to largely-text posts such as blogs or news articles; if we're unsure of the value of your post, we might remove it until you add a submission statement. A submission statement is required for non-text sources (videos, podcasts, images).

Culture war posts go in the culture war thread; all links must either include a submission statement or significant commentary. Bare links without those will be removed.

If in doubt, please post it!


Rules


Recommended Posts And Communities

Recommended Realtime Chats