Africa finds itself at the crossroads of economic innovation and traditional practices, faced with the compelling need to reevaluate its dependence on the US dollar.
Kenya’s President, William Ruto, steps into the spotlight with an ambitious proposal aimed at redefining how the continent conducts its trade – a proposal that places Africa’s economic future firmly in its own hands.
Ruto Proposes Pan-African Payments and Settlement System
Ruto’s vision centers around the Pan-African Payments and Settlement System (PAPSS), a financial initiative birthed in January 2022 by the African Export-Import Bank (Afreximbank) and the African Continental Free Trade Area (AfCFTA) Secretariat.
With a strong endorsement from the African Union and central banks, this system represents an innovative approach to facilitating trade within the continent.
At a forum on AfCFTA in Nairobi, Ruto extended a clarion call to fellow African leaders, appealing to both central and commercial banks across the continent to actively participate in PAPSS.
The new system, he suggested, could help address the challenges inherent in settling cross-border payments in disparate currencies, an area in which the dominance of the dollar has been undisputed.
“We do not have to look for dollars; our businessmen will concentrate on moving goods and services, and leave the arduous task of currencies to Afreximbank,” Ruto urged.
The Impact of Dollar Dependence on African Economies
The dominance of the US dollar in African trade has traditionally necessitated a reliance on correspondent banks, predominantly located in the US and Europe, to facilitate payments between nations.
The dollar transactions often involve substantial costs at each stage of the process and a waiting period of up to five days for payments to reach recipients’ banks.
Ruto’s proposal offers an alternative that would eliminate the need for third-party facilitation, with Afreximbank stepping in to handle currency-related issues, enabling businesses to focus on their core operations.
Moreover, the scarcity of US dollars has led to an artificial inflation of the currency’s value, adversely impacting businesses. The Kenya Association of Manufacturers highlighted that last year’s dollar crunch strained supplier relationships amid rising demand and persistent supply chain constraints.
Additionally, the high demand for US dollars in a high-inflation environment has put the Kenyan currency under intense pressure. This currency devaluation has resulted in inflated costs for key imports, such as fuel and raw materials, further straining the economy.
Steering Africa Towards Economic Autonomy
Ruto’s stance on currency independence reflects a broader narrative of Africa taking control of its economic destiny. By proposing to use the mechanism provided by Afreximbank, he advocates for an environment where the continent is not ‘held hostage’ to any single currency.
This departure from dependence on the dollar could well signal a new era of self-reliance for Africa, fostering a trading ecosystem that is more sustainable, stable, and free from external volatility.
As Ruto concluded his speech in Nairobi, he emphasized the need for the continent to tackle its ‘dollar problem’ head-on.
He insisted on the urgency of implementing a system such as PAPSS, one that empowers the continent to assert control over its financial transactions and steer towards a future marked by economic sovereignty.
This is more than an economic proposal; it is a call to action for Africa to assert its financial independence and redefine its future. If successful, this initiative could reshape the landscape of African trade, laying the foundation for a new era of economic empowerment and prosperity for the continent.
