Kenyan President William Ruto has urged African countries to ditch the Dollar and explore alternative currencies for trade and investment. Speaking at a regional economic summit held in Nairobi, President Ruto emphasized the need for African nations to assert greater control over their economies and reduce their exposure to external economic fluctuations. President Ruto also emphasized the benefits of the Pan-African Payments and Settlement System (PAPSS), which enables businesspeople to prioritize the seamless movement of goods and services.
Pan-African Settlement System Aids African Nations in avoiding reliance on U.S. Dollar
Kenyan President William Ruto has urged African leaders to commence actions toward replacing the U.S. dollar with the Pan-African Payments and Settlement System (PAPSS) as an alternative payment solution. He highlighted that the PAPSS, launched in January 2022, enables African nations to utilize their own currencies for intra-continental trade.
Addressing a gathering of government and private sector representatives, the Kenyan President proposed that African nations initiate the process of moving away from the U.S. dollar by promoting the participation of central banks and commercial banks in the Pan-African Payments and Settlement System (PAPSS).
African institutions collaborate to develop Pan-African Payment Solution
According to a report from East Africa, the Pan-African Payments and Settlement System (PAPSS), an alternative payment system supported by African central banks, was developed in collaboration between the African Export-Import Bank (Afreximbank) and the Secretariat of the African Continental Free Trade Area (AFCFTA).
In elaborating on the reasons behind the necessity for African countries to ditch the Dollar, it is reported that the Kenyan leader stated:
“We are all struggling to make payments for goods and services from one country to another because of differences in currencies. And in the middle of all these, we are all subjected to a dollar environment.”
However, Ruto proposed that once the settlement system is implemented, the primary focus of businesspeople should be on facilitating the movement of goods and services. The Kenyan president stated that the challenging aspects related to currencies would be handled by Afreximbank, a pan-African multilateral trade finance institution.
“There has been a mechanism where all our traders can trade in the local currency, and we leave it to the Afreximbank to settle all the payments. We do not have to look for dollars; our businessmen will concentrate on moving goods and services and leave the arduous task of currencies to Afreximbank.”
Reliance on correspondent banks for African Currency Transactions
Currently, African traders and their local banks rely on correspondent banks, often located in the US and Europe, to facilitate payments between two African currencies, with the majority of these transactions conducted in dollars and occasionally in euros.
Importers, including oil marketers and manufacturers, have raised concerns about the significant disparity between the demand and supply of US dollars. As a result, they have resorted to purchasing dollars in large quantities and at rates significantly higher than the official exchange rate.
This dollar shortage has strained relationships with suppliers, especially as competition for raw materials intensifies due to increased demand and ongoing supply chain challenges. Last year, the Kenya Association of Manufacturers highlighted the detrimental impact of the dollar crunch on their operations.
Kenyan President William Ruto’s call for African countries to ditch the Dollar in favor of alternative payment solutions, such as the Pan-African Payments and Settlement System (PAPSS), highlights the growing desire for economic independence among African nations. The reliance on correspondent banks for African currency transactions, often in dollars or euros, has led to challenges and inflated costs for importers.
By embracing PAPSS and reducing dependency on the dollar, African countries can strengthen economic autonomy, foster regional integration, and mitigate risks associated with external economic fluctuations. While the transition will require careful coordination and planning, it holds the potential to promote stability, enhance intra-African trade, and pave the way for a more prosperous future for the continent.