Central Bank of Kenya (CBK) signs deal allowing African countries to trade in local currencies to cut overreliance on the dollar.
Kenya has signed an agreement allowing it to join the Pan African Payments and Settlement System (PAPSS), which means Kenyan businesses can conduct business with other African firms using local currencies, according to Trade Cabinet Secretary Moses Kuria.
The Cabinet Secretary disclosed in a statement on Friday that the move will allow Kenya to reduce its over-reliance on the dollar, a position that President William Ruto has strongly advocated for in the past.
“I am pleased to announce that the Central Bank of Kenya has signed the instruments that have finally seen Kenya join the Pan African Payments and Settlement System (PAPSS),” Kuria said in the statement.
The decision, according to CS Kuria, will have a significant positive impact on the African Continental Free Trade Area (AfCFTA), a deal that promotes closer trade links between African nations.
The Pan-African Payment and Settlement System (PAPPS) is a cross-border, financial market infrastructure enabling payment transactions across Africa.
PAPPS aims to link African banks, payment service providers, and other market intermediaries to enable quick and safe payments across the continent’s many nations.
The technology envisions instant payments from suppliers to beneficiaries in their local currencies, no matter where they are in Africa.
The platform was developed in collaboration with the African Export-Import Bank (AfrExim Bank).
Its objective is to ensure African countries align with the larger objective to increase intra-continental trade.
The move comes as Kenya and many African countries face a severe drop in valuation of their currency against the dollar.
President William Ruto has occassionally vowed to reduce the dominance of the dollar.
In a meeting with African presidents, Ruto called on the leaders to embrace local currencies while doing business with each other.
“Why are we bringing dollars in the middle of our trade, this is the question we should be asking ourselves, and in the process, all our businesses are stranded, Egypt cannot pay for our tea because they are looking for dollars, we cannot pay for their sugar because we are looking for dollar. I have spoken with President Oramah of the African Export/Import Bank and they have built a mechanism where all our traders can trade in local currency, we do not have to look for dollars. I know we are strong to see because of what the dollar has done,” Ruto said during the second edition African Continental Free Trade Area Meeting in June.
“I suggest that we have a mechanism where we can settle all our payments whether between our countries or externally using our local currencies so that we don’t have to be hostage to one currency or the other,” the head of state added.