The Pan-African Payment and Settlement System is a real-time settlement infrastructure for cross-border payments in local currencies. The initiative was publicly launched in January 2022. The move mirrors other initiatives around the world to develop financial systems independent of the US dollar. While it promotes soft de-dollarization, completely moving away from the greenback may not be its intended action.
De-Dollarization Not The Goal Of The Pan-African Payment and Settlement System
According to the Pan-African Payment and Settlement System chief Mike Ogbalu, “Our goal, contrary to what people might think, is not de-dollarization.“
Bypassing the US dollar seems like a prudent alternative. Ogbalu highlights how African economies struggle to find third-party global currencies to settle transactions. Commercial banks in Africa often rely on overseas counterparts. Partnerships with overseas counterparts significantly add to transaction costs. Trade in Africa becomes 50% more expensive than the global average.
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Ogbalu adds that pivoting away from the US dollar and using local currencies could save $5 billion a year in hard currency.
According to Syracuse University professor Daniel McDowell, “The existing financial network that is largely dollar-based has essentially become less effective for Africa, and costlier.“
No Giving Up On The Greenback
President Trump has made it very clear that countries attempting to move away from the US dollar will be met with heavy sanctions. Developing nations cannot afford to sour relations with the US. With a global ongoing tariff war, the timing is not right to make a move against the greenback.
In January of this year, Trump wrote on Truth Social, “There is no chance that BRICS will replace the U.S$ in International Trade, or anywhere else, and any Country that tries should say hello to Tariffs, and goodbye to America!“
India, a core member of the BRICS bloc of nations, has also said that it does not intend to do away with the US dollar. Other BRICS nations, such as China and Russia, have made substantial developments to bypass the dollar for mutual trade. Russia, being a sanctioned state, has no other option but to use alternative currencies for trade.