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PaperclipPerfector  3d ago (text post)   784 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.

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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.

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.

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