Central Bank moves to end dollar dominance in African trade deals

Central Bank of Kenya Governor Kamau Thugge when he previously appeared before National Assembly Public Accounts Committee at Parliament. [File, Standard] President William Ruto's quest to free Kenya and other African countries from the dominance of the US dollar and other foreign currencies in trade transactions has started in earnest. This is after the Central Bank of Kenya (CBK) formally opened discussions to join an Africa-wide cross-border payment system billed as a panacea to the dollar shortage crisis facing Kenya and other African economies. CBK Governor Kamau Thugge said on Tuesday talks are underway for Kenya to actualise the African Union-backed platform in Kenya. The Pan-African Payment and Settlement System (PAPSS) was formally launched in January last year. It is a centralised payment and settlement system for intra-African trade in goods and services. It is backed by the pan African trade bank, the Africa Import-Export Bank (Afreximbank), and the African Union (AU). "We are in the midst of discussions with the Afreximbank on how we can join this Pan-African Payment and Settlement System," said Dr Thugge on Tuesday during a post-Monetary Policy Committee (MPC) meeting briefing. The new system has already been commercially rolled out after a yearlong pilot in six West African countries under the West Africa Monetary Zone (WAMZ) with other regional countries, expected to join in. Five African multinational commercial banking groups, including KCB Group, Access Bank Group, Ecobank Group, Standard Bank Group, and UBA Group, have already signed memorandums of understanding to join the platform. As part of this, KCB Group and the other regional lenders will collaborate closely with PAPSS to ensure seamless integration of the platform into their existing systems. This will include opening up all their African footprints for PAPSS, facilitating settlement of transactions, encouraging the participation of financial technology in the system via the banks and expanding the platform to all the banks' current digital channels such as mobile app banking and e-banking. President Ruto has recently been vocal in backing the system, joining other bodies calling for its adoption such as the platform's developer the Afreximbank and the United Nations Economic Commission for Africa (UNECA). On Tuesday, Dr Thugge reinforced the calls, noting the new payments platform is welcome and timely and could help alleviate the foreign exchange currency shortage. He added it will help Kenyan traders tap opportunities from the African Continental Free Trade Area (AfCFTA). "Definitely, PAPSS would reduce the demand for dollars, and so we are looking very much forward to that discussion and how we move forward towards PAPSS in light of moving also towards the African continent free trade area," said the new CBK boss. The payments platform allows companies in Africa to pay for intra-African trade transactions in their local currency. Africa currently has approximately 42 individual currencies. "We are all struggling, and all our businessmen are struggling, and our traders are struggling to make payments for goods and services from one country to another because of differences in currencies," President Ruto said recently while addressing the African Private Sector Dialogue on the African Continental Free Trade Area in Nairobi. "And in the middle of all these, we are all subjected to a dollar environment. Kenyans want to pay for Tanzanian goods in dollars, Tanzanians want to pay for DRC goods in dollars... why are we bringing dollars in the middle of our trade. This is the question we should be asking ourselves," he added. Afrexim Bank President Benedict Oramah, who originated the platform, says it will be a game changer for intra-African trade as it could save businesses across the continent $5 billion (Sh700 billion) in transaction costs each year if fully adopted. "It will save the continent $ 5 billion in intra-African transfer changes," said Prof Oramah. He said under the new system, transaction costs will be lower because traders or investors do not need to convert each country's currency into the US dollar, easing pressure on the local currency. Getting the coveted US currency locally has not been easy in the recent past amid the unprecedented depreciation of the shilling. Kenyan businesses from diverse sectors have in recent months complained of difficulty in accessing the dollar in quantities they want, forcing them to wait for days to weeks to accumulate the funds to enable them to make payments to their overseas suppliers. This has forced the government to intervene, with President Ruto vowing to address the dollar crisis. Some Kenyan traders have said they are unable to source enough dollars on a reliable basis, forcing them to scale down their operations. Currently, a buyer in Kenya seeking goods from a seller in neighboring Uganda is required to pay in a third currency from outside the continent, either the US dollar, the Euro, or the British pound. But the new system will enable instant payment whereby traders in Kenya and other regional countries will no longer need to convert local units into hard currencies, its backers say. PAPSS is tipped to reduce transaction costs through more efficient direct rates and faster transfers, according to the platform's developer - Afreximbank. That way, Kenya and other African countries are expected to reduce dependency on the US dolar and other hard currencies, a situation that has particularly left Kenya facing external shocks that have choked supply chains. Under the new system, a Kenyan trader will issue a payment instruction in his or her local currency to their bank or payment service provider. The payment instruction is then sent to the new payment system, which is then expected to carry out all necessary validation checks. The order is then forwarded to the beneficiary's bank or payment service provider with the receiver's bank clearing the funds in their local currency.

Central Bank moves to end dollar dominance in African trade deals

Get Full Access for Ksh299/Week.

Related Topics

Popular this week

Latest Stories

The Standard Insider

Digger Classified

GET OUR NEWSLETTER

CONNECT WITH US

FOR THE LATEST JOB ADVERTS

DIGGER JOBS

Digger Motors

Digger Real Estate

Central Bank moves to end dollar dominance in African trade deals

Get Full Access for Ksh299/Week.

Related Topics

Popular this week

Latest Stories

The Standard Insider

Digger Classified

GET OUR NEWSLETTER

CONNECT WITH US

FOR THE LATEST JOB ADVERTS