Experts moot single payment system within continent to facilitate trading
A question on whether African countries should ditch the United States dollar and seek alternatives as the continental currencies continue to weaken against the dollar and worsen the cost of living, has received mixed reactions from both leaders and experts.
On Monday, Kenya's President William Ruto called on African leaders to move toward ditching the US dollar by signing up to a Pan-African Payment and Settlement System to facilitate and boost intra-African trade.
The payment system is an African Union infrastructure developed in collaboration with the African Export-Import Bank to complement trading under the African Continental Free Trade Area.
Banks and payment providers could plug directly to the system to enable secure and instant payments in local currencies, to reduce or eliminate the challenges of cross-border payment, Ruto said.
"All our businessmen and traders are 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."
Xn Iraki, associate professor at the University of Nairobi's Faculty of Business and Management Sciences, said ditching the dollar will not be easy, and the US might fight back because most of the debts and trade are dominated in dollars.
African government and policymakers would have to solve the riddle of the currency that will replace the dollar, whether multiplicity of currencies could make matters worse and whether trade would flow if a more stable currency replaces the dollar, he said.
"It's not clear which currency will replace the dollar. Euro? RMB? I foresee a multiplicity of currencies before a dominant one arises."
Innovations such as Bitcoins could make another dominant currency unnecessary, Iraki said.
Meanwhile, signing up to a Pan-African Payment and Settlement System would make trade easier, he said.
African countries should go farther and get a single African currency to facilitate trade within the continent, he said.
"But remember, currency is not the only hindrance to trade. Poor infrastructure, conflicts and ties to colonial powers stand in the way."
If the dollar is dropped, it would attenuate the US influence, Iraki said, noting the dollar's status as the world's reserve currency gives Washington uneven amount of influence over other economies, such as the ability to impose sanctions to achieve its foreign policy goals.
Aly-Khan Satchu, a leading African investment banker in Kenya, said Africa is yet to arrive at the "dollar-ditching" moment.
Following global trends
"This is way too premature. However, there is no reason why intra-Africa trade flows and cross-continent African trade cannot escape the guardrails of the dollar system and follow the trends we are witnessing globally," he said.
"For example, the Chinese yuan is now 5 percent of global trade from 1 percent. Therefore, I think we are at the beginning of a trend rather than a regime-change moment."
Recent dollar shortages in African countries, the African Continental Free Trade Area and other global geoeconomics developments all indicate that the Pan-African Payment and Settlement System momentum is heaving into view.
The decision by US authorities to sanction Russia's reserves, which also the Europeans apparently are considering doing, was a singularly suboptimal move with respect to the dollar, Satchu said.
The scenario made countries across the globe start to aggressively look for mitigation measures, he said.
"We have already witnessed a sharp slide in dollar reserves, which fell from 55 percent in 2021 to 47 percent in 2022, which is an unprecedented 8-percentage-point drop in a single year."