Africa incurs an estimated $5 billion in annual losses due to its reliance on foreign currencies, particularly the US dollar, for trade, according to Dr. Melaku Geboye Desta, Coordinator of the African Trade Policy Centre (ATPC).
Speaking at the 57th session of the ECA Conference of African Ministers of Finance, Planning, and Economic Development in Addis Ababa, Dr. Desta cited data from Afreximbank, highlighting the financial burden placed on African economies as a result of foreign currency dependency.
For decades, African nations have conducted trade—both within the continent and with international partners—using the US dollar, euro, British pound, and, more recently, the Chinese yuan. This practice stems from historical economic ties, post-colonial financial structures, and the dominance of Western currencies in global commerce. However, this system has significant drawbacks.
Reliance on foreign currencies inflates transaction costs, delays trade settlements, and exposes African economies to exchange rate volatility. Additionally, it forces African businesses and governments to maintain large foreign currency reserves, often secured through borrowing or trade surpluses with external partners, thereby straining economic stability.
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“The moment we remove non-African currencies as intermediaries, the moment we start saving on conversion and reconversion costs, trade will become cheaper, faster, and more competitive,” Dr. Desta explained.
To address this challenge, Africa has developed the Pan-African Payment and Settlement System (PAPSS), which facilitates transactions without the need for an intermediary currency. According to Dr. Desta, this system presents “huge opportunities to save on transaction costs and expedite trade within the continent.”
In response to these challenges, some African nations are exploring trade in local currencies, particularly with non-Western partners such as China and Russia. Ethiopia and Russia, for instance, have recently announced plans to conduct bilateral trade in their respective national currencies, reducing reliance on the US dollar and enhancing financial independence.
As Africa seeks to strengthen economic integration through initiatives like the African Continental Free Trade Area (AfCFTA), reducing dependence on foreign currencies is becoming a critical strategy to enhance trade efficiency and economic resilience.
