CURRENCY DEPENDENCE IN AFCFTA: AN APPRAISAL OF THE PAN-AFRICAN PAYMENT AND SETTLEMENT SYSTEM IN AS A REMEDY TO AFRICA’S FOREIGN EXCHANGE PROBLEM

Abstract

The African Continental Free Trade Area (AfCFTA) Agreement was established to create a single African market encompassing approximately 1.4 billion people and to increase intra-African trade from 15% to 50% by 2030. However, despite the commencement of its operational phase, Africa’s continued dependence on foreign currencies, particularly the United States dollar and the euro, for intra-African trade settlements remains a significant structural challenge. This dependence increases transaction costs, causes payment delays and exposes businesses to exchange-rate risks, thereby undermining the objectives of the AfCFTA. In response, the Pan-African Payment and Settlement System (PAPSS), developed through the collaboration of the AfCFTA Secretariat and the African Export-Import Bank (Afreximbank), was introduced to facilitate instant cross-border payments in local currencies. Using the doctrinal method of legal research, this paper examines the legal and economic implications of currency dependence under the AfCFTA and evaluates the capacity of PAPSS to address the problem. The paper argues that although PAPSS addresses key technical and cost-related challenges associated with cross-border payments, its effectiveness depends on legal harmonisation, central bank cooperation, adequate financial infrastructure and widespread adoption by small and medium-sized enterprises (SMEs). It concludes that the success of PAPSS depends on expanding its geographical coverage, encouraging SME participation and strengthening the institutional and regulatory frameworks supporting its operation. The paper recommends, among other measures, that the National Assembly amend the Central Bank of Nigeria Act to mandate the use of PAPSS for government transactions and intra-African payments by SMEs below a specified threshold, subject to appropriate safeguards and implementation arrangements.