The President of Kenya, William Ruto, has urged African leaders to ditch the US dollar by signing up to the Pan-African Payments System (PAPSS) in order to faciliate trade within the continent.
Ruto urged Africa to mobilise central and commercial banks to join PAPSS which was launched in 2022 to faciliate intra-Africa trade. The payment system was developed by African Export-Import bank (Afreximbank) and the African Continental Free Trade Area (AfCFTA) Secretariat.
PAPSS is also backed by the African Union and all African central banks.
Currently, local banks and traders use correspondent banks in the United States and Europe to complete payments between African currencies which largely takes place in dollars and Euros. Such trades usually take 3-5 days and there are charges at every stage.
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Speaking to forum of government and private sector officials at an AfCFTA forum in Kenya, President Ruto said:
“We are all struggling to make payments for goods and services from one country to another because of differences in currencies. And in the middle of all these, we are all subjected to a dollar environment.
I suggest that we have a mechanism where we can settle all our payments whether between our countries or externally using our [local] currencies. And we have a mechanism like the one that has been put up by the Afreximbank so that we don’t have to be hostage to any one currency.
Without a single payment platform, payment instructions from one African country to another typically passes through several intermediary financial institutions, leading to increased costs, complications, problems and unnecessary currency fluctuations and it ends up being a whole ecosystem of confusion.”
PAPSS launched after a pilot that included participation from central banks and financial institutions across 6 West African countries.
Here are illustrative steps on how it all works out:
- A sender issues a payment instruction in their local currency to their bank or payment service provider
- Payment instruction is sent to the PAPSS system
- PAPSS carries out all necessary validation checks on the payment instruction
- The payment instruction is forwarded to the receiver’s bank or payment service provider
- The receiver’s bank clears the funds to the beneficiary in their local currency
From these steps, we can see that PAPSS is an intermediary between financial services providers like banks. The creators of the system envision a common African market that will benefit a range of participants including governments, banks, businesses, and individuals.
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