The new Pan-African Payments and Settlements System, or PAPSS is generating much hype in Africa, with hopes of formalizing $50 billion in informal trade and saving the continent around $5 billion in processing costs.
Boosting local economies
The initiative already garnered support from key players, but some doubts linger about its long-term viability.
Tunde Macaulay, head of Africa and offshore regions at Standard Bank Group, highlighted that PAPSS could potentially bring $50 billion of informal trade into the formal economy.
This system, which started in 2022, wants to facilitate instant or near-instant money transfers between African countries, and it’s designed to make payments more accessible and efficient for individuals and small businesses alike.
Macaulay pointed out that PAPSS could boost financial inclusion and help strengthen local currencies across the continent.
While many African governments are on board with this initiative, there are still questions about whether it can effectively compete with the U.S. dollar as a trusted payment method.
Cash is king, and dollar is the number one
Some experts are skeptical about PAPSS’s ability to stand up against the dollar.
Macaulay believes that if implemented properly, PAPSS could be a viable alternative.
“We will have visibility of it if the payment system is implemented the way it’s supposed to be.”
Currently backed by 115 commercial banks and 13 central banks, PAPSS still requires a coordinated effort to achieve a network effect for widespread adoption.
Also, challenges may arise from political shifts, particularly with Donald Trump’s return to the political scene.
Trump has previously expressed strong opposition to countries trying to move away from dollar dominance, but it’s not exactly clear what could he doing in Africa.
The bigger picture
Overall, PAPSS wants to streamline cross-border transactions across Africa by allowing payments in local currencies without needing to convert them into dollars or euros first.
This could reduce costs and transaction times big time, potentially transforming how trade is conducted on the continent.
For PAPSS to succeed, it will need strong backing from central banks and a commitment from various countries to adapt this new system fully.
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