AFRICA ( Commonwealth Union) _ Kenya’s President William Ruto is urging African leaders to take initial steps towards moving away from the dominant US dollar by endorsing a pan-African payments system designed to facilitate trade within the continent. Dr. Ruto is encouraging African countries to encourage their central and commercial banks to join the Pan-African Payments and Settlement System (PAPSS), which was launched in January 2022.
The system was developed by the African Export-Import Bank (Afreximbank) and the African Continental Free Trade Area (AfCFTA) Secretariat, with support from the African Union and African central banks.
Dr. Ruto highlighted the challenges faced by African nations in making cross-border payments due to currency differences, emphasizing the overwhelming reliance on the US dollar. He proposed that by utilizing the local currency and entrusting payment settlements to Afreximbank, African traders could focus on facilitating trade while the arduous task of managing currencies would be handled by the bank.
Currently, African traders and local banks often resort to correspondent banks in the US and Europe to complete payments between different African currencies, typically in dollars or euros. This process incurs delays of three to five days and involves additional charges at each stage.
The shortage of US dollars has particularly impacted importers, such as oil marketers and manufacturers, who have been forced to purchase dollars at inflated rates due to a significant disparity between supply and demand. This situation has strained relations with suppliers and contributed to price pressures on fuel and raw materials, impacting a net import economy like Kenya.
Dr. Ruto proposes the establishment of a payment mechanism that allows settlements using local currencies, both within and outside African countries. He advocates for the adoption of a similar system to Afreximbank’s, aiming to reduce complications, costs, unnecessary currency fluctuations, and the reliance on a single currency.
Kenya experienced a fuel shortage, which oil marketers largely attributed to delays in releasing funds for fuel subsidies, causing cash flow difficulties. However, the government accused the firms of hoarding the commodity. President Ruto recently suggested that the shortage was not solely due to fuel availability but was instead an economic issue related to the scarcity of US dollars. According to him, the government maintained an artificial exchange rate, hindering oil marketers from purchasing fuel despite its availability.
In conclusion, President Ruto is advocating for African leaders to embrace the Pan-African Payments and Settlement System as a means to reduce reliance on the US dollar, simplify cross-border payments, and alleviate challenges faced by traders and importers in Africa.
