Duncan Miriri
5 min read
By Duncan Miriri
NAIROBI (Reuters) -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.
But efforts to move away from the dollar face strong opposition and the threat of retaliation from U.S. President Donald Trump, who is determined to preserve it as the dominant currency for global trade.
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.
"If you look at African economies, you'll find that they struggle with availability for third-party global currencies to settle transactions," he said.
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.
"The existing financial network that is largely dollar-based has essentially become less effective for Africa, and costlier," said Daniel McDowell, a professor at Syracuse University in New York specialising in international finance.
HOMEGROWN SYSTEMS
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%.
