In a world marked by increasing geo- political polarisation and sudden dis- ruptions in trade and financial flows, ensuring sovereignty and the resilience of payments and settlements have be-come vital considerations for economic survival.

The global payments and settlement system has been dominated by Europe and America, an outcome of their domination of the global economic system in the cur- rent era. Efforts have been made by Russia and China in recent decades to increase the independence of their payment and settlement systems, especially in the face of the global reliance on the US dollar and Western sanctions such as denial of access to the international money transfer system and settlement system.

Until now African countries have had no choice but to tag along with the West- ern payment and settlement systems. In practice, this arrangement meant that transactions from African countries were often sent through payment and settle- ment systems controlled in Europe or the US, either in the form of wire transfers sent through the SWIFT system or pay- ment cards issued by the likes of Visa, Mastercard or American Express.

This often resulted in higher trans- action costs, with the transfers going through several intermediaries and un- dergoing multiple currency conversions. Overdependence on these foreign payment systems also amounts to over-reliance on international currencies and leads to a need to have large reserves of these, par- ticularly the US dollar, to settle payments.

This further entrenched dependence on foreign payments and correspondent banking. In the process, African countries have scant control over their data, rais- ing issues of governance and sovereignty, while at the same time leaving them even more susceptible to geopolitical shocks, such as sanctions, wars and disruptions to those trading systems.

In another part of the world, China’s efforts to achieve payments and settle- ments sovereignty have been character-ised by a need to avoid or reduce Western limitations or restrictions on its global trade. To promote international use of its currency, China created the Cross-Border Interbank Payment System (CIPS) that seeks to reduce reliance on dollars and the SWIFT system by facilitating the use of its renminbi currency in global trade and finance. A digital version of the renminbi serves as an alternative legal tender that can be transferred directly without the need for a bank account.

Russia has stepped up efforts to achieve greater payments and settlements sov- ereignty following the sanctions it has faced from Western powers over its war in Ukraine. It created a new mechanism for payments and settlements related to its sovereign bonds. Alternative mechanisms for trade have also been worked out on a bilateral basis with important trading partners.

Even in Europe, there is growing un-ease about the influence of traditional US payments operators Visa, Mastercard and American Express, as well as those owned by tech giants such as Apple Pay, Google Pay and PayPal. The European Payments Initiative, started by a group of Europe- an banks in 2020, is part of the effort to seek payments sovereignty by creating a regional infrastructure that will reduce Europe’s reliance on foreign systems and technologies. The Single European Pay- ments Area legislation is designed to build an integrated payment system with a fine balance of innovation, sovereignty, secu- rity and consumer confidence.

A fragmented international trading and financial system, riven by geopolitical rivalries, presents Africa with an oppor- tunity to forge its pathway to payments and settlements sovereignty, according to experts in African multilateral financial institutions. The Pan-African Payments and Settlements System (PAPSS), which began operations in 2022, enabling instant payments for goods and services in local currencies for businesses and individuals, is the arrowhead of that effort.

PAPSS makes routing African payments through other currencies unnecessary, with the potential to save the continent an estimated $5bn a year, combining stronger sovereignty with great savings. Africa can also keep the data generated from these transactions. The possibilities have been expanded with the introduction of the PAPSS Card, which can be used for busi- ness travel and cross-border payments. The payment system is complemented by the PAPSS African Currency Marketplace, “an order book-driven, continent-wide liquidity pool” to service African com- merce, according to Mike Ogbalu, PAPSS chief executive officer.

Ultimately, it is all about building a system that supports Africa’s future, says Muzaffar Khokhar, executive chairman of the Mercury payments company, a partner in developing the PAPSS Card. “This is about sovereignty, innovation, and build- ing trust in African systems to shape the continent’s financial future.” n

For decades, African transactions have been routed through Western- controlled systems like SWIFT and Visa, leading to high costs, multiple currency conversions, and a loss of sovereignty.

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