ADDIS ABABA – Experts attending the 57th session of the Conference of African Ministers of Finance, Planning and Economic Development have urged African governments to seek options of settling trade and other transactions in local currencies.
Prioritising local-currency financing is a proactive step to protect Africa’s economies from external shocks and create a more resilient financial ecosystem, Hanan Morsy, chief economist with the United Nations Economic Commission for Africa, told the gathering Tuesday.
“Another game changer in African development is the growth of pan-African payment system which would enable trading in local currencies,” Morsy said, noting that Africa’s heavy dependence on the U.S. dollar has caused economic vulnerabilities.
Melaku Geboye Desta, coordinator of the Africa Trade Policy Center, said Africa’s trading in currencies such as the U.S. dollar costs the continent about 5 billion dollars a year.
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“The moment we remove the non-African currencies, the hard currency serving as an intermediary, the moment we start saving the transaction cost involved in the conversion and reconversion process,” he said. “We believe trade will be facilitated. It will be cheaper. It will be more competitive.”
Desta said a single African currency would help boost trade, increase economic cooperation among African Union (AU) members and stimulate faster development across the continent. “We believe that there are huge opportunities to save transaction costs that would in turn make African firms more competitive and trade with each other,” he added.
Desta said that recently, some African countries have begun using local currencies to conduct business with non-Western partners such as China and Russia.”For decades, African states have traded both within the continent and with international partners with foreign currencies, namely the U.S. dollar, the euro, and, to a lesser extent, the British Pound,” he said.
This reliance has been the result of historical economic links, post-colonial banking institutions, and global trading patterns, Desta said. The secretary general of the African Continental Free Trade Area (AfCFTA) Secretariat, Wamkele Mene, said Africa is already moving toward a single currency, which is critical to eliminating some of the transaction costs related to intra-African trade. He said a monetary union would help reduce the cost of financial transactions and eliminate exchange risks.
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