Ruto receives boost in plan to liberate Kenya from foreign currencies

President William Ruto and Central Bank of Kenya Governor Dr. Kamau Thugge. [PCS, Standard] President Ruto's plan to liberate Kenya and other African nations from the grip of the US dollar and other foreign currencies in trade transactions has gained momentum with the launch of a new pan-African payment system in Kenya. Kenyan traders can now utilise the innovative payment platform, supported by the Africa Import-Export Bank (Afreximbank) and the African Union (AU). The Pan-African Payments Settlement System (PAPSS), officially launched in January 2022, serves as a centralised payment and settlement framework for intra-African trade in goods and services. "Effective immediately: customers of banks connected to PAPSS can send money to Kenya. It is faster, safer, and cheaper," said the platform while announcing its launch recently. Countries currently integrated into the system include Nigeria, Liberia, Sierra Leone, Ghana, Guinea, Gambia, Kenya, Djibouti, Zimbabwe, and Zambia, with plans to onboard all African nations. This payment platform enables companies across Africa to conduct intra-African trade transactions using their local currencies, a significant advantage given that Africa has around 42 distinct currencies. Previously, a buyer in Kenya wishing to purchase goods from a seller in Uganda had to transact in a third-party currency, such as the US dollar, Euro, or British pound. The new system aims to facilitate instant payments, removing the necessity for traders in Kenya and neighbouring countries to convert local currencies into hard currencies. Proponents of the new payment system reckon that this advancement will streamline and simplify trade transactions across the continent. "We are all struggling, and our traders face challenges making payments for goods and services between countries due to currency differences. Why are we introducing dollars into our trade?" posed President Ruto during the African Private Sector Dialogue on the African Continental Free Trade Area (AfCTA) in Nairobi recently. President Ruto lamented the bottlenecks that exist in cross-payment, citing them as a hindrance to the growth of enterprises and businesses in the continent. "It should be possible for us to sell, do business and trade with African countries without minding their currencies," he said. President Ruto said through AfCTA, the African market is already consolidated, and in this exists great opportunities. "That is the possibility that the pan-African payment system gives us and Kenya will champion it so that we eliminate the roadblocks and hurdles that businesses and entrepreneurs face." PAPSS was developed by the African Export-Import Bank in partnership with the African Continental Free Trade Area (AfCFTA) Secretariat. Outgoing Afrexim Bank President Benedict Oramah, who championed the platform, stated that it could transform intra-African trade by potentially saving businesses across the continent $5 billion (approximately Sh645 billion) in transaction costs annually if fully implemented. "The Pan-African Payment and Settlement System is operational. It will save the continent $5 billion in intra-African transfer costs," said Prof Oramah. "It will also expedite payments for intra-African trade using African currencies." The new system allows countries to trade seamlessly with their own currencies, aiming to reduce costs and accelerate the payment and settlement of trade transactions. Currently, African companies and banks often rely on correspondent banks-typically located outside Africa-to settle payments between two African currencies using a third, external currency, usually dollars or euros. This reliance has created foreign exchange pressures for African Central Banks. By facilitating payment settlements, PAPSS seeks to bolster African trade under the AfCFTA framework. African Central Banks supervise the governance and daily operations of PAPSS, headquartered in Cairo, Egypt. It is important to note that PAPSS serves as an exchange for legal tender only, excluding digital assets like cryptocurrencies or Central Bank Digital Currencies. Trade practices among African nations have historically been dominated by the US dollar. Whether Kenyan traders engage with Djibouti or conduct other intra-continental transactions, the necessity of using the US currency has often posed significant challenges. The potential savings stem from eliminating the need for traders and investors to convert their currencies into US dollars, thereby alleviating pressure on local currencies. Central Bank of Kenya (CBK) Governor Kamau Thugge said earlier that the new system is timely and could help address foreign exchange shortages. He highlighted that the platform would enable Kenyan traders to seize opportunities within AfCFTA. As of June 2022, the PAPSS network consisted of eight central banks, 28 commercial banks, and six switches. All central banks were expected to have signed up by the end of that year and all commercial banks have up to the end of 2025. CBK was not among them.

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