Africa loses an estimated $5 billion each year because many cross-border transactions are conducted in foreign currencies, primarily the US dollar, says Dr. Melaku Geboye Desta of the African Trade Policy Centre. This dependence on non-African currencies raises the cost of trade, prolongs settlement times and exposes economies to exchange-rate volatility.
Using currencies outside the continent creates several practical problems. Conversion fees and correspondent bank charges add up, eroding margins for exporters and importers alike. Payment delays caused by routing through intermediary banks slow delivery and cash flow. And because African currencies are effectively priced in relation to major global currencies, sudden swings in exchange rates can undermine planning, inflate costs and increase the risk carried by small and medium-sized enterprises.
To reduce those frictions, African institutions have developed the Pan-African Payment and Settlement System (PAPSS). PAPSS is designed to enable direct, secure settlement in African currencies without routing payments through a third-party reserve currency. By clearing and settling transactions within the continent, PAPSS aims to lower transaction costs, speed up payment finality and support deeper regional trade integration.
Early adopters of PAPSS report benefits that include quicker settlements, reduced banking charges and a more transparent payments trail. Over time, wider use of the system could improve liquidity in African currencies and encourage price discovery that better reflects regional supply and demand. That, in turn, would help businesses plan with more certainty and promote competitiveness in intra-African trade.
Beyond PAPSS, several African countries are exploring the use of local currencies for trade with partners outside the West, notably China and Russia. Settling bilateral trade in national currencies can reduce reliance on global reserve currencies, lower conversion costs and simplify financial arrangements. Such arrangements must be negotiated carefully to manage exchange-rate risk and to ensure adequate liquidity for settlements.
Moving toward greater use of African currencies requires coordinated policy action. Governments, central banks and regional economic bodies need to strengthen payment infrastructure, increase foreign-exchange market depth and improve regulatory frameworks that support cross-border banking. Initiatives to build FX liquidity, develop hedging instruments and enhance transparency in trade invoicing would also reduce risk for businesses.
Supporting small and medium-sized enterprises is particularly important, since these firms often face the greatest barriers to cross-border trade. Simplified payment procedures, access to competitive foreign-exchange services and targeted capacity-building can help SMEs take advantage of new regional payment systems. In addition, closer cooperation among African financial institutions can expand correspondent relationships and reduce dependency on non-African intermediaries.
While challenges remain—such as varying monetary policies, limited market depth in some currencies and the need for robust legal frameworks—the move toward Africa-centric settlement mechanisms is a significant step. Reduced transaction costs and faster payment flows can strengthen regional value chains, improve competitiveness and help retain more of the financial benefits of trade within the continent.
In sum, shifting away from an overreliance on foreign currencies toward systems and practices that favor African currencies offers tangible economic gains. By accelerating adoption of PAPSS, developing bilateral currency arrangements where feasible and building stronger financial market infrastructure, African countries can lower trade costs, mitigate exchange-rate exposure and foster a more resilient, integrated regional economy.