Beyond the Greenback: Shifting Global Finance Impacts African Trade

African businesses can face extra costs when a regional payment requires conversion into US dollars and then into the seller's currency. Local-currency settlement networks seek to reduce those steps.

The Pan-African Payment and Settlement System is one such initiative. Its value to a trader depends on participating banks, available currencies and fees; it does not remove dollar exposure from imports or loans still priced in dollars.

For African economies, this shift is not just an academic debate about reserve currencies. The heavy reliance on dollar-denominated trade means local businesses face high transaction costs, currency conversion risks, and constant exposure to shifts in US interest rates.

When the Federal Reserve raises rates, borrowing costs spike for African governments and enterprises alike, making cross-border business within the continent more expensive than it needs to be.

The domestic policy side is covered in our report on CBK’s proposed oversight of payment providers.

Moving past dollar dominance

The US dollar accounts for the majority of global foreign exchange reserves and international trade invoicing. However, central banks around the world have quietly begun diversifying their holdings.

This movement is driven by two main forces: a desire to mitigate foreign exchange risks and the need to lower the cost of regional commerce. When a business in Kenya trades with a supplier in Egypt or South Africa, settling the payment often requires converting local currencies into US dollars first before converting them back into the destination currency.

This double-conversion mechanism extracts a toll on business margins through bank fees and exchange rate spreads. As a result, multilateral institutions and central banks are actively exploring direct currency clearing systems and local-currency trade settlements to keep transaction value within regional borders.

Regional networks gain traction

The diversification of global finance is also visible in how central banks manage their liquidity. Bilateral currency swap agreements between central banks have expanded significantly over the past decade. These arrangements allow financial institutions to access liquidity in partner currencies directly without needing to source US dollars from global capital markets during times of stress.

In Africa, initiatives like the Pan-African Payment and Settlement System (PAPSS) aim to operationalise this exact concept. By allowing commercial banks to clear and settle intra-African trade transactions in local currencies, such systems reduce the dependency on clearing banks located in New York or London.

For small and medium-sized enterprises, this shift directly impacts the bottom line: shorter transaction times, reduced fees, and protection against dollar shortages that frequently paralyse import-dependent supply chains.

Tokenised deposits and CBDCs accelerate fragmentation

While the US dollar is unlikely to lose its position as the premier global reserve currency in the near term, the structural framework supporting international trade is becoming noticeably more fragmented. Central bank digital currencies, tokenised deposits, and alternative cross-border payment rails are accelerating this trend.

For investors, policymakers, and business owners across Africa, tracking these international economic developments is essential. As non-dollar trade channels mature, companies that structure their financing and supply chains to adapt to regional clearing systems will be better positioned to navigate global currency volatility.

The future of international money is no longer a single story about America’s currency, but a broader network of interconnected regional markets.