African nations are prioritizing the use of local currencies in trade among themselves as a core strategy to strengthen economic ties and build resilience. The move comes as the global financial order undergoes significant changes, with the US dollar's dominance facing challenges and new economic blocs like BRICS+ gaining prominence.
Currently, intra-African trade accounts for a relatively small portion of the continent's total exports, standing at only 17%. Significant barriers such as high transaction costs and currency mismatches have historically hindered greater trade volumes among African countries.
However, by facilitating trade settlement in their own currencies rather than relying on external ones like the US dollar, African nations can achieve several critical objectives. This approach is expected to significantly reduce the costs associated with currency exchange, mitigate the risks posed by fluctuating exchange rates, and allow more value to be retained within the African economy.
Efforts are already underway to make this vision a reality. The African Continental Free Trade Area (AfCFTA) initiative is a major driver for increasing trade within Africa, and it strongly supports the use of local currencies. Complementing this is the development of the Pan-African Payment and Settlement System (PAPSS). PAPSS is designed to enable efficient and reliable cross-border payments in local currencies across the continent, thereby fostering the development of regional value chains and enhancing overall economic resilience against external financial shocks.
The experience of BRICS nations in increasing trade settled in their own currencies also offers valuable insights and lessons for Africa. By adopting similar strategies to bypass reliance on the dollar in mutual trade, African countries can enhance their financial autonomy and further reduce their exposure to volatility originating from outside the continent.
Ultimately, strengthening intra-African trade through the strategic use of local currencies is seen as a transformative element. Supported by initiatives like AfCFTA and PAPSS, this approach is crucial for driving sustainable growth, fostering regional integration, and reducing dependence on external funding sources in a rapidly changing global economic landscape.