"Afreximbank wants Africans buying from each other, with their own money"

" Afreximbank wants Africans buying from each other, with their own money \r\n\r\nA pan-African payment system that would allow African nations to trade among themselves, using their own currencies, is gaining momentum.\r\n\r\nThe African Export-Import Bank expects 15 to 20 countries to have joined the Pan-African Payment and Settlement System by the end of the year, Afreximbank President Benedict Oramah said in an interview ahead of the lender\u2019s annual meetings in Accra, Ghana\u2019s capital, that runs Sunday through June 21. The platform has started commercial operations with nine countries signed up so far, he said.\r\n\r\nThe system, known as PAPSS, is using dollar exchange rates for now, said Oramah, whose bank funds the system. \u201cBut we are working with central banks to develop an exchange-rate mechanism\u201d that would allow Africa\u2019s 42 currencies to be convertible among themselves. \u201cWhat we are doing is to domesticate intra-African payments,\u201d he said.\r\n\r\nThe vast majority of Africa\u2019s intra-regional trade is done through conversions to the dollar. Initiatives like PAPSS and the African Continental Free Trade Agreement, which would create the world\u2019s largest free trade zone by area, seek to boost internal trade by reducing barriers, including the need for intermediaries such as the US dollar.\r\n\r\nThe free trade zone and the payment system are ambitious projects in a fragmented region of 54 countries, with different languages, currencies and regulations. Africans trade more outside the continent than among themselves, with just 17% of exports going somewhere else within the region, according to a McKinsey Global Institute report published this month. That excludes informal trade, which is difficult to quantify.\r\n\r\nAfrica isn\u2019t alone in looking for ways to break its dependency on the US currency; there\u2019s been a de-dollarization push across emerging markets, including India\u2019s efforts to clear trade through the rupee, Sweden\u2019s SEB AB said in a May 2 note. China and Malaysia have played with the idea of an Asian Monetary Fund, while Brazil and Argentina announced a project for a common currency called the \u201csur.\u201d\r\n\r\nThese alternatives are unlikely to unilaterally dethrone the dollar as the global reserve currency, SEB Chief EM strategist Erik Meyersson wrote, without referring to PAPSS. But if emerging markets \u201care instead more interested in simply reducing their relative dependence on the USD as well as finding alternatives as a potential hedge against the West\u2019s weaponization of sanctions and other economic measures,\u201d there are signs they may be achieving some results.\r\n\r\nOramah bucked against the idea that PAPSS might seek to bypass the dollar. \u201cWe\u2019re not bypassing anybody,\u201d he said. \u201cNot the dollar, not the yuan, not the euro. That\u2019s not the objective of the project.\u201d It does, though, aim to cut dollar reliance over time, he said.\r\n\r\nAfreximbank is budgeting $3 billion to clear trades so that anybody requiring dollars will get their dollars, Oramah said. As intraregional trade picks up, the hope is that \u201cthe net settlement position after clearing should turn to zero, so that there will be no need to pay any dollar to anybody.\u201d\r\n\r\nThe Bloomberg Dollar Spot Index, which tracks the performance of a basket of 10 leading global currencies versus the dollar, has declined 2% so far this year. Half of the ten worst-performing currencies in the world have been African, including the Nigerian naira, the Angolan kwanza, the Burundi franc, and the Egyptian pound.\r\n\r\nThe depreciation of many African currencies has added to the region\u2019s inflationary pressures, which in turn spurred tighter monetary policy, with higher interest rates at home, in addition to the increased cost of external debt.\r\n\r\nThe creation of a concessional loan window, which will allow the bank \u201cto blend\u201d its own resources, is among the tools being deployed to cut borrowing costs, Oramah said. Afreximbank shareholders will vote on aspects of this window during this week\u2019s annual meetings.\r\n\r\nBut the ultimate relief would be a new injection of reserve assets from the International Monetary Fund, he said, adding to the voices of African leaders clamoring for fresh support.\r\n\r\n\u201cWhat will work best is for access to funding to improve in the system overall,\u201d he said. \u201cThat\u2019s why it\u2019s very important for the IMF to issue new Special Drawing Rights.\u201d"

"Afreximbank wants Africans buying from each other, with their own money"

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