Reserve Bank of Zimbabwe (RBZ) Governor Dr John Mangudya has thrown weight behind the Pan-African Payment and Settlement System, a cross-border, financial market infrastructure enabling payment systems across Africa.
PAPSS was developed by Afreximbank and is regarded as a leading-edge technology connecting African banks, payment service providers and other financial market intermediaries.
It enables instant and secure payments between African countries in their local currencies and is seen as a platform that eases the costs and complexities of foreign exchange for cross-border transactions between African countries.
Speaking at the official opening ceremony of the 30th Afreximbank Annual Meetings (AAM2023) on Monday, the bank’s president Professor Benedict Oramah told delegates PAPSS will save the continent US$5 billion in intra-African transfer charges.
PAPSS “will also expedite and enable payments for intra-African trade in African currencies,” he said.
“Very soon, we will domesticate all intra-African payments and extend the same to the CARICOM, where just a few days ago, the Association of CARICOM Central Banks adopted PAPSS as their preferred payment infrastructure for a pilot project.
Afreximbank backs the clearing and settlements with an amount of US$3 billion.
Dr Mangudya sees PAPSS as a platform that will ease the pressure on demands for foreign exchange liquidity in Zimbabwe.
The southern African country is going through volatile exchange rate crisis that has seen the Zimbabwe dollar tumble from a parallel market exchange rate of$1 100 to the US dollar at the beginning of the year to about $8 000/US$1.
The local currency has been weakening the official auction system starting the year trading at $705,41 to the greenback and now going at $6 790,32/US$1.
In an interview, on the sidelines of the AAM2023, Dr Mangudya said: “As Africans we need to use our own currencies to trade amongst ourselves and only use foreign currency for the net settlements, otherwise for anything over and above what the trades our African currencies were not able to pay.
“In that way, it’s very important for promoting trade, as you know trade is about the exchange of goods and services. In the exchanges what is important is settlement, so we now have a system for doing that. It means that you need to develop a system that is compliant,” he said.
Dr Mangudya said Zimbabwe had already signed to be using that system developed by Afreximbank where the country is the third largest Class A shareholder.
PAPSS currently has nine central banks linked to the platform. It already has six launch countries that make up the West African Monetary Zone — Nigeria, the Gambia, Sierra Leone, Liberia, Ghana and Guinea.
Zimbabwe, Djibouti, and Zambia are on a pilot stage.
PAPSS supports over 42 African currencies and is expected to reduce currency depreciation and inflation.
However, experts say since the platform uses different currencies, fluctuations in exchange rates can impact the cost and efficiency of transactions and to deal with that,
PAPSS needs to address currency conversion challenges to ensure cost-effective transactions.
However, those in the know say PAPSS will set benchmark reference rates to set a reasonable boundary on the exchange rate to give comfort and avoid arbitrage. There is also a mechanism that ensures they are not out of sync with other available rates.
For example, parties to the transaction can agree on the rate and transactions are sent in one local currency and terminated in another with all the net amount changing hands.
“So, this will dramatically reduce the funds actually moving between countries,” said Dr Mangudya.
Company officials are on record saying the system will reduce demand for the movement of money by more than 80 percent. – The Herald
