Africa’s longstanding ambition to move away from U.S. dollar-based transactions is finally gaining traction through the development of local currency payment systems. This shift promises to reduce the high costs of intra-African trade that have long hindered economic integration.
The Pan-African Payments and Settlements System (PAPSS) is at the forefront, enabling direct transactions in local currencies and bypassing the need for dollar conversions. While this shift is often viewed through a geopolitical lens, African officials stress that the primary goal is not de-dollarisation, but rather cost-efficiency and greater financial autonomy.
High Transaction Costs Undermine Trade, Local Currency Systems Offer Billions in Savings
Historically, African banks have relied on expensive correspondent banking systems—mostly anchored in Western financial institutions—to settle international payments, even between neighboring countries. This structure inflates transaction costs significantly, contributing to trade within Africa being about 50% more expensive than the global average.
These costs are a key reason why the majority of Africa’s trade—84%, according to the MCB Group—takes place with external partners rather than within the continent itself. Simplifying cross-border payments using local currencies could unlock significant intra-African trade potential.
Africa Advances Local Currency Trade System to Cut Costs and Ease Dollar DependencePAPSS has emerged as a critical tool for reducing trade costs, allowing businesses to transact in local currencies like the naira, cedi, and rand. Estimates suggest the system could cut transaction costs from as much as 30% to just 1%, potentially saving Africa $5 billion annually in hard currency.
Since its launch in January 2022, PAPSS has expanded to 15 countries and includes 150 commercial banks. The International Finance Corporation (IFC) is also supporting this transition by issuing loans in local currencies to shield African businesses from the volatility of dollar-denominated debt.
G20 Platform Highlights Africa’s Push for Currency Independence Amid Geopolitical Tensions
South Africa, currently holding the G20’s rotating presidency, is actively championing Africa’s regional payment systems on the global stage. It hosted sessions focused on boosting local currency transactions during recent G20 finance meetings, pushing for follow-up actions.
South Africa’s central bank governor emphasized the urgency of establishing African-led financial mechanisms, highlighting that some of the world’s costliest cross-border payment corridors are within the continent. These efforts aim to support a more self-reliant African economic ecosystem, reinforcing the broader goals of the African Continental Free Trade Area (AfCFTA).
Despite Africa’s economic motivations, the move away from the dollar has provoked strong reactions from U.S. President Donald Trump. His administration views such moves—especially those aligned with BRICS nations—as threats to the dollar’s dominance. Trump has threatened steep tariffs in response to any country attempting to shift away from the greenback.
Experts warn that Africa’s payment system efforts may be perceived as politically charged, aligning them—whether intentionally or not—with broader anti-dollar initiatives led by China and Russia. This could invite geopolitical pushback, complicating Africa’s quest for economic self-determination.
