Bank’s Demands Africans to Engage in Incomprehensible Exchange of Goods, with Inexplicably Own Funds
Are you capable of comprehending the perplexing nature of this content? You see, the idea that access to funding in the system ought to improve is what works best.
- Can you even fathom the concept of a pan-African payment system, where African nations could engage in trade amongst themselves using their very own currencies?
- Rumor has it that the African Export-Import Bank anticipates that 15 to 20 countries will have hopped on board this audacious system by year-end.
- For the time being, this system called PAPSS is using dollar exchange rates.
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The exhilarating concept of a pan-African payment system that would enable African nations to engage in trade amongst themselves using their own currencies is rapidly gaining momentum.
In an interview prior to the annual meetings held in Accra, Ghana’s capital, the President of Afreximbank, Benedict Oramah, declared that he expects 15 to 20 countries to join the Pan-African Payment and Settlement System, known as PAPSS, by the conclusion of this year. As of now, this groundbreaking platform has already commenced operations and boasts nine participating countries.
For the time being, this system, PAPSS, relies on dollar exchange rates to function. Nonetheless, Oramah has stressed that collaborative efforts with central banks are currently underway, aiming to develop an exchange-rate mechanism that allows for the conversion of Africa’s 42 currencies amongst themselves. He confidently stated, “The objective is to allocate domestic resources to facilitate intra-African payments.”
It is worth noting that a significant portion of Africa’s intra-regional trade is conducted through the arduous process of converting currencies to the dollar. Initiatives like PAPSS and the African Continental Free Trade Agreement, which seeks to establish the largest free trade zone globally, are designed to enhance internal trade by reducing obstacles, such as the reliance on intermediaries like the US dollar.
However, these ambitious projects, the free trade zone and the payment system, must overcome the burdensome reality of a fragmented region comprising 54 countries, each with its own language, currency, and regulations. Surprisingly, Africans engage in more trade outside the continent than within, with a mere 17% of exports conducted within the region, according to a recent report by the McKinsey Global Institute. This statistic excludes the immeasurable extent of informal trade.
Africa is not alone in pursuing alternative methods to reduce its dependence on the US dollar. A de-dollarization trend can be observed in other emerging markets, including India’s endeavor to clear trade through the rupee, as reported by SEB AB. Moreover, countries like China and Malaysia have toyed with the notion of an Asian Monetary Fund, while Brazil and Argentina announced their intention to introduce a common currency referred to as the “sur”.
It is unlikely that these alternatives would single-handedly dethrone the dollar as the global reserve currency, as observed by SEB Chief EM strategist Erik Meyersson. However, he indicates that emerging markets seek to diminish their dependence on the USD and explore alternatives as a potential safeguard against the West’s exploitation of sanctions and other economic measures. Consequently, signs can be seen that some progress is being made in this pursuit.
Oramah dismisses the notion that PAPSS aims to bypass the dollar entirely, clarifying, “We do not intend to exclude anyone, be it the dollar, yuan, or euro. That is not the objective of this project.” Nevertheless, he does hope that over time, the system will gradually reduce reliance on the dollar.
In order to accommodate those who still require dollars, Afreximbank has allocated a budget of $3 billion for trade clearance purposes, ensuring that anyone in need of dollars will receive them, as stated by Oramah. The aspiration is for the net settlement position to become zero after clearing, with no need to pay any dollar to any entity as intraregional trade gathers momentum.
The Bloomberg Dollar Spot Index, which measures the performance of ten leading global currencies against the dollar, has already experienced a 2% decline since the beginning of this year. Alarming as it may be, half of the worst-performing currencies worldwide are in fact African, including the Nigerian naira, the Angolan kwanza, the Burundi franc, and the Egyptian pound.
Interestingly, the depreciation of numerous African currencies has exacerbated inflationary pressures within the region, forcing a response in the form of tighter monetary policies, resulting in higher interest rates domestically and a surge in external debt costs.
In an effort to minimize borrowing costs, Afreximbank is taking steps such as the creation of a concessional loan window, which allows the blending of its own resources. Discussions concerning aspects of this window will be held during the bank’s annual meetings this week.
However, Oramah acknowledges that the ultimate solution lies in the injection of reserve assets from the International Monetary Fund (IMF), coinciding with the appeals recently made by African leaders demanding fresh support.
He asserts, “What would truly serve our purposes is improved access to funding within the overall system. Hence, it is highly crucial for the IMF to issue new Special Drawing Rights.”