In a bold move to further enhance financial integration and boost cross-border commerce, the Pan-African Payments and Settlement System (PAPSS) is set to introduce the Africa Currency Marketplace later this year. Backed by 15 central banks across the continent and already integrated with 150 commercial banks, PAPSS’s forthcoming foreign exchange (FX) market platform is designed to directly match buyers and sellers of local currencies. This initiative comes at a crucial juncture when Africa’s foreign exchange markets have long been hindered by shallow liquidity, reliance on intermediary currencies, and a fragmented regulatory landscape.

With growing momentum behind efforts to modernize Africa’s payments infrastructure and deepen intra-regional trade, the new platform promises to revolutionize how local currencies are exchanged, reduce transaction costs, and mitigate risks associated with currency volatility. As detailed by PAPSS CEO Mike Ogbalu during a Reuters interview from Cairo, the platform will employ market-driven rates and advanced matching algorithms that will enable transactions to occur directly between counterparties without the need for a third-party currency intermediary.

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A New Era for African Cross-Border Payments

For years, Africa’s foreign exchange markets have been characterized by limited liquidity and a heavy dependence on major currencies such as the U.S. dollar or the South African rand. This structure has often forced businesses to secure dollars first before transacting in local currencies—a process that increases costs and exposes companies to additional risks. In many cases, companies operating across borders have found themselves unable to repatriate revenue during times of economic stress or political instability, as witnessed in markets like South Sudan and the Central African Republic.

The launch of the Africa Currency Marketplace is set to address these long-standing challenges. By allowing parties to exchange local currencies directly, the platform will facilitate smoother and more efficient cross-border trade. For instance, consider an Ethiopian airline selling naira-denominated tickets in Nigeria. Under the new system, the airline’s naira revenue could be directly exchanged with a Nigerian firm trading in Ethiopia for Ethiopian birr—all without the need to convert through an intermediate, more volatile currency. “Our system will intelligently match them so that one party gets naira in Nigeria while the other receives birr in Ethiopia,” explained Ogbalu, highlighting the potential for seamless, cost-effective transactions.

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PAPSS: Strengthening the Continent’s Payments Infrastructure

Established with the goal of reducing the cost and complexity of cross-border transactions, PAPSS has already made significant inroads in unifying the fragmented payments ecosystem in Africa. Launched as part of a broader initiative to foster financial inclusion and economic integration, PAPSS now connects 150 commercial banks and is supported by 15 central banks. This extensive network not only reinforces its credibility but also lays a strong foundation for the successful deployment of the new FX market platform.

The significance of PAPSS goes beyond simple payments processing. It serves as a critical infrastructure component in Africa’s broader strategy to stimulate intra-African trade—a goal that has been championed by initiatives such as the African Continental Free Trade Area (AfCFTA). By streamlining payment processes and reducing reliance on hard currency, PAPSS is poised to play a transformative role in ensuring that local trade is not stifled by inefficient currency exchanges or prohibitive conversion fees.

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The Need for a Dedicated FX Marketplace in Africa

Africa’s foreign exchange landscape has historically been plagued by several challenges:

• Shallow Liquidity: Many African currencies suffer from low trading volumes, making it difficult for businesses to transact at competitive rates.
• Dependency on the Dollar: With a large portion of cross-border trade hinging on the U.S. dollar, companies face increased exposure to global market fluctuations.
• Regulatory Fragmentation: Divergent monetary policies and controlled exchange rate regimes in various African countries often lead to inefficiencies and market distortions.
• Currency Volatility: In markets experiencing political or economic instability, local currencies can be highly volatile, further complicating trade and investment.

The proposed FX market platform by PAPSS aims to overcome these obstacles by creating a more integrated and transparent marketplace. By matching supply and demand for various African currencies directly, the platform is expected to enhance liquidity and provide market-driven rates that reflect real-time trading dynamics. This, in turn, could lead to more predictable exchange rates and lower transaction costs for businesses and financial institutions operating within the continent.

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Technical Underpinnings of the Africa Currency Marketplace

At the heart of the new platform is an advanced matching engine capable of processing real-time orders from multiple participants. This technology will ensure that the best available rates are automatically matched, enabling direct currency exchanges between counterparties. Here are some of the key technical features expected to underpin the platform:

• Automated Matching Algorithm: The system will aggregate rate offers from various participants, matching orders based on the best available market conditions. This minimizes human error and reduces the time required to complete transactions.
• Market-Driven Pricing: Unlike traditional FX systems that rely on fixed or administratively controlled rates, the platform’s prices will be determined by actual market supply and demand. This creates a dynamic pricing environment that is more reflective of true economic conditions.
• Direct Currency Exchange: By eliminating the need for a third-party or intermediary currency, the platform reduces the number of conversion steps, thereby cutting transaction costs and mitigating risks associated with multiple currency exchanges.
• Integration with Existing Infrastructure: PAPSS’s extensive network of 150 commercial banks and its backing by 15 central banks ensures that the new platform will be seamlessly integrated into Africa’s existing payments ecosystem. This connectivity is crucial for achieving widespread adoption and ensuring liquidity.

The design of the Africa Currency Marketplace is a clear departure from conventional FX platforms. In developed markets, sophisticated systems like Europe’s TARGET2 or various interbank platforms in Asia have long dominated. However, Africa’s unique economic landscape—with its multiplicity of local currencies and diverse regulatory environments—necessitates a tailored approach that addresses the specific challenges faced by the continent.

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Impact on Intra-African Trade and Economic Integration

The launch of the FX market platform is anticipated to have a transformative impact on intra-African trade. By facilitating direct currency exchanges, the platform will reduce reliance on the U.S. dollar and other hard currencies, thereby lowering transaction costs and minimizing currency risk. This has several far-reaching implications:

• Enhanced Trade Efficiency: Companies will be able to transact directly in local currencies, which simplifies accounting, reduces conversion fees, and accelerates settlement times. This efficiency is expected to boost intra-African trade volumes significantly.
• Increased Liquidity: The pooling of supply and demand for various African currencies could lead to improved liquidity in markets that have traditionally suffered from low trading volumes. Enhanced liquidity, in turn, promotes more stable exchange rates and encourages investment.
• Promotion of Regional Economic Sovereignty: By reducing the dependency on the dollar, African nations can gain greater control over their monetary policies and economic destinies. This shift could empower governments to enact more flexible and responsive financial policies tailored to local economic conditions.
• Support for Small and Medium Enterprises (SMEs): Many SMEs in Africa face disproportionately high costs when engaging in cross-border trade. The new platform could level the playing field by providing access to competitive exchange rates, thereby enabling SMEs to participate more effectively in regional trade.

In addition, the Africa Currency Marketplace dovetails with broader continental initiatives such as the AfCFTA, which aims to create a single market for goods and services across Africa. By addressing the currency exchange challenges that have long hampered intra-African trade, PAPSS’s new platform could serve as a vital enabler of the free trade area, spurring economic growth and regional integration.

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Addressing Liquidity Challenges and Currency Volatility

One of the most critical hurdles in African foreign exchange markets has been the issue of liquidity. Many local currencies are traded in relatively small volumes, making it difficult to secure favorable rates for large transactions. This liquidity constraint often forces companies to take a hit through unfavorable conversion rates or, in worst-case scenarios, resort to holding assets in non-local currencies such as the U.S. dollar.

The Africa Currency Marketplace is designed to pool liquidity from a wide range of participants—from commercial banks and financial institutions to corporate treasuries. By aggregating liquidity, the platform is expected to create a more vibrant market where competitive pricing becomes the norm rather than the exception. Moreover, by allowing for direct currency exchanges, the platform minimizes the layers of conversion that often amplify volatility. This streamlined process can help stabilize exchange rates, making it easier for businesses to forecast costs and revenues.

There is also an optimistic outlook among experts that enhanced liquidity could have broader macroeconomic benefits. For instance, increased liquidity might lead to reduced inflationary pressures in economies where currency instability has historically been a drag on growth. As more market participants engage in transparent and efficient currency trading, the overall stability of local financial systems is likely to improve.

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Regulatory Landscape and Central Bank Collaboration

The successful launch of an FX market platform of this magnitude hinges on strong regulatory support and seamless coordination among various financial authorities. PAPSS’s initiative is uniquely positioned in this regard, as it is backed by 15 central banks from across the continent. This institutional support is critical for several reasons:

• Enhanced Credibility: The involvement of central banks lends the platform immediate credibility, reassuring market participants of its stability and regulatory compliance.
• Harmonized Policies: With central banks working together under the PAPSS framework, there is a greater likelihood of harmonized monetary policies across different jurisdictions. Such coordination is essential for the smooth functioning of a pan-African FX marketplace.
• Risk Management and Oversight: Central banks can provide crucial oversight to ensure that the platform operates in a transparent manner, with robust mechanisms in place to prevent market manipulation and systemic risks.
• Promotion of Market-Based Reforms: Several African countries, including Nigeria, Egypt, and Ethiopia, have recently embarked on currency reforms aimed at creating more market-based foreign exchange regimes. The new platform is likely to accelerate these reforms, offering a tangible alternative to administratively controlled exchange rate systems.

The regulatory framework for digital financial services in Africa is evolving rapidly, and initiatives like the Africa Currency Marketplace are at the forefront of this transformation. While there are still challenges—such as ensuring cybersecurity and maintaining data integrity—the collaborative approach led by PAPSS and its central bank partners bodes well for the platform’s long-term success.

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Embracing Digital Transformation: Fintech and the Future of Payments

Africa has emerged as a global leader in digital innovation, particularly in the realm of financial services. The success of mobile money platforms such as Kenya’s M-Pesa has demonstrated the transformative power of digital payments in promoting financial inclusion. In this context, PAPSS’s move to launch an FX market platform represents a natural extension of the continent’s digital revolution.

By leveraging state-of-the-art digital infrastructure, the Africa Currency Marketplace is expected to integrate seamlessly with existing fintech solutions across the region. This integration could pave the way for a comprehensive digital financial ecosystem that supports a wide array of services—from payment processing and credit facilities to trade financing and investment management. For businesses and consumers alike, this could translate into faster, more secure, and cost-effective financial transactions.

Moreover, the digitalization of financial services is likely to foster greater transparency and accountability in the region’s financial markets. With real-time data analytics and automated matching systems, the platform can offer unprecedented visibility into market dynamics, enabling participants to make more informed decisions. This level of transparency is particularly critical in markets that have historically been plagued by opacity and inefficiencies.

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Expert Perspectives and Market Outlook

Analysts and industry experts have welcomed PAPSS’s initiative as a significant step toward modernizing Africa’s financial landscape. Many see the new FX market platform as a long-overdue intervention that could unlock immense economic potential by facilitating smoother cross-border transactions and reducing reliance on hard currencies.

One market expert noted, “This platform is not just about currency exchange—it’s about creating a more integrated and resilient financial ecosystem in Africa. By enabling direct, market-driven exchanges, PAPSS is setting the stage for a new era of intra-African trade.” Such sentiments are echoed by others who believe that the platform could serve as a model for similar initiatives in emerging markets around the world.

The anticipated benefits of enhanced liquidity, improved pricing transparency, and reduced transaction costs are expected to have a ripple effect across the entire economy. SMEs, which have traditionally been the most affected by high conversion costs and volatile exchange rates, stand to gain significantly. With easier access to competitive FX rates, these businesses can lower their operating costs, reinvest savings into growth initiatives, and expand their reach into new markets.

Furthermore, as African economies continue to diversify and modernize, the need for robust digital payment systems becomes ever more critical. The Africa Currency Marketplace is well-timed to capitalize on this momentum, aligning with broader continental goals such as the AfCFTA and ongoing digital transformation efforts spearheaded by governments and private sector players alike.

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Challenges and the Road Ahead

While the prospects for the new platform are undeniably promising, several challenges must be addressed to ensure its success:

• Cybersecurity and Data Integrity: As with any digital platform handling sensitive financial transactions, ensuring robust cybersecurity measures is paramount. PAPSS and its partner central banks will need to invest heavily in advanced security protocols to safeguard against cyber threats.
• Market Liquidity: Although the platform is designed to pool liquidity from multiple sources, achieving sufficient market depth for all African currencies may take time. Early adopters might experience fluctuations as the system scales up and attracts more participants.
• Regulatory Coordination: Despite strong backing from central banks, the regulatory landscape across Africa remains fragmented. Continuous efforts will be required to harmonize policies and ensure that the platform meets the diverse regulatory requirements of each participating country.
• User Adoption: For the platform to reach its full potential, it will need widespread acceptance among both financial institutions and corporate users. PAPSS will likely have to launch extensive outreach and education campaigns to build trust and demonstrate the platform’s value proposition.

Nonetheless, the strategic advantages offered by the Africa Currency Marketplace—combined with strong institutional support—suggest that these challenges can be overcome. With a clear focus on innovation, transparency, and integration, PAPSS is well-positioned to lead Africa into a new era of financial connectivity.

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Conclusion: A Transformative Leap for Africa’s Financial Future

The planned launch of the FX market platform by PAPSS marks a pivotal moment in Africa’s ongoing quest to modernize its financial infrastructure and boost intra-continental trade. By enabling direct exchanges between local currencies through a market-driven, technologically advanced system, the Africa Currency Marketplace is set to eliminate many of the longstanding inefficiencies that have plagued the region’s foreign exchange markets.

With 15 central banks and 150 commercial banks already on board, the initiative has the institutional muscle needed to drive significant change. The platform not only promises to reduce transaction costs and improve liquidity but also offers a strategic tool for promoting economic sovereignty and regional integration. As African nations continue to embrace digital transformation and market-based reforms, the launch of this innovative FX platform could well be the catalyst that unlocks a new era of financial growth and stability across the continent.

In the coming months, all eyes will be on PAPSS as it finalizes the development of the Africa Currency Marketplace. Should the platform deliver on its promises, it could redefine the way African currencies are traded, enhance the efficiency of cross-border commerce, and set a new standard for digital financial infrastructure in emerging markets. For businesses, policymakers, and investors alike, this is a development that heralds exciting times ahead—a future where technology and collaboration pave the way for a more integrated, resilient, and prosperous Africa.

As the launch approaches, industry experts remain cautiously optimistic. They see the initiative not only as a means to overcome current challenges in the FX market but also as a blueprint for future innovations in digital finance. The transformative potential of the Africa Currency Marketplace is clear: by leveraging cutting-edge technology and strong institutional backing, PAPSS is poised to deliver a solution that could reshape the financial landscape of Africa for decades to come.

Ultimately, the success of this initiative will depend on continued collaboration between central banks, regulatory authorities, financial institutions, and market participants. With all stakeholders aligned around a shared vision of a more connected and efficient financial system, the stage is set for a revolution in how intra-African trade is conducted—one that could have profound implications not only for Africa’s economic future but for the global financial ecosystem as well.

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photo source: Google

By: Montel Kamau

Serrari Financial Analyst

13th March, 2025