Kenya renews Calls for African countries to Abandon the Dollar

African leaders have been urged by President William Ruto to join a pan-African payments system to ease trade within the continent as a first step toward abandoning the US dollar, which is currently enjoying global strength.

The Pan-African Payments and Settlement System (PAPSS), which was introduced in January 2022, has been urged by Dr. Ruto’s African counterparts to recruit central and commercial banks.

African Export-Import Bank (Afreximbank) and the Secretariat of the African Continental Free Trade Area (AfCFTA) developed the intra-African trade system. The African Union and African central banks supported the initiative.

“We are all 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,” Dr Ruto told a forum of government and private sector officials attending a forum on AfCFTA in Nairobi on Monday.

“There has been a mechanism where all our traders can trade in the local currency, and we leave it to the Afreximbank to settle all the payments. We do not have to look for dollars; our businessmen will concentrate on moving goods and services and leave the arduous task of currencies to Afreximbank.”

African traders and their local banks make payments between two African currencies primarily in dollars and occasionally in euros through correspondent banks, typically in the US and Europe.

The payment arrives at the recipient’s bank in three to five days, with fees applied at each step.

Since last year, importers like oil marketers and manufacturers have complained of a stark mismatch in the demand and supply of US dollars, which has led them to purchase it in bulk and at rates far above the official rate.

The Kenya Association of Manufacturers, for instance, claimed last year that the dollar crisis harmed relationships with suppliers at a time when demand for raw materials was increasing and there were still supply chain constraints.

The US dollar has continued to exert pressure on the currency due to higher demand than supply in an environment of high inflation, which has caused investors to move their assets to safe havens.

The Kenyan shilling has lost about 12.1% of its value since the year’s beginning, currently trading at about 138.33 units per dollar.

As a result, prices for crucial inputs like fuel and raw materials for factories in a net import economy have been under pressure.

“I suggest that we have a mechanism where we can settle all our payments whether between our countries or externally using our [local] currencies. And we have a mechanism like the one that has been put up by the Afreximbank so that we don’t have to be hostage to any one currency,” Kenya’s leader said.

“Without a single payment platform, payment instructions from one African country to another typically passes through several intermediary financial institutions, leading to increased costs, complications, problems and unnecessary currency fluctuations and it ends up being a whole ecosystem of confusion.”

Kenya experienced a severe fuel shortage, which the oil marketers largely attributed to problems with cash flow caused by delays in releasing funds for fuel subsidies. The government, however, accused the companies of hoarding the commodity.

Contradicting Patrick Njoroge, the governor of the Central Bank of Kenya, the President claimed earlier this month that Kenya ran an artificial exchange rate market in the previous year that resulted in a severe fuel shortage and forced rationing of the necessary good.

“We discovered there wasn’t a fuel [shortage] problem. It was a misdiagnosis. The problem was economic and much more a dollar problem.

There was fuel that had come, but the oil marketers could not find the dollars to go and buy because the government was maintaining an artificial rate,” Dr Ruto told a media engagement session on May 14.