Africa's Payments: A Continent on the Path to Currency Independence

The African efforts to establish payment systems in local currencies are taking increasingly concrete forms. This relieves the continent from costly dollar transactions that have hindered trade so far. However, the resistance to decoupling from the dollar is strong, particularly from the USA, where President Donald Trump vigorously defends the dominance of the dollar as a global trade currency. Africa's initiative to create payment systems that do not rely on the dollar is reminiscent of China's efforts to develop financial systems independent of Western institutions. Countries like Russia, which are subjected to economic sanctions, are also interested in an alternative to the dollar. Despite the urgency due to changing trade patterns and geopolitical shifts after Trump's return to the White House, African proponents of alternative payment methods mainly argue with the costs. Mike Ogbalu, CEO of the Pan-African Payment and Settlement System (PAPSS), emphasizes that it is not about de-dollarization but about reducing transaction costs. Currently, African banks rely on correspondent banks abroad, which dramatically increases the costs. This contributes to the high trade costs, which, according to the UN Trade and Development Agency, are 50% above the global average in Africa. Domestic systems like PAPSS could reduce the costs of trade worth 200 million dollars between two African countries from 10%-30% to only 1%. This would save the continent 5 billion dollars in hard currency annually by using currencies like the Nigerian Naira or the South African Rand for intra-African trade. The implementation of these systems is accompanied by international interest. The World Bank subsidiary IFC now grants loans in local currencies, thus facilitating African companies to manage currency risks. Support for regional payment systems was recently acknowledged at the G20 summit, led by South Africa. Yet, Trump's aggressive responses to any attempts to bypass the dollar remain a challenge. The complexity of geopolitical influences and concerns about retaliatory measures complicate Africa's efforts. Despite the economic arguments, the continent may find it difficult to distance itself from politically motivated de-dollarization attempts. It remains to be seen how viable these measures will be without Western support.