Latest news with #localcurrency
Malay Mail
10 hours ago
- Business
- Malay Mail
Africa pioneers low-cost, non-dollar payment systems, defying Trump's de-dollarisation threats
PAPSS payment system allows trade settlement in local currencies Experts says move aims of lowering trade costs South Africa using G20 presidency to advance local payments US President Trump warns against de-dollarisation efforts NAIROBI, June 20 — Africa's push for local currency payments systems — once little more than an aspiration — is finally making concrete gains, bringing the promise of less costly trade to a continent long hobbled by resource-sapping dollar transactions. But efforts to move away from the dollar face strong opposition and the threat of retaliation from US President Donald Trump, who is determined to preserve it as the dominant currency for global trade. The move by Africa to create payments systems that do not rely on the greenback mirrors a push by China to develop financial systems independent of Western institutions. Countries like Russia, which face economic sanctions, are also keen for an alternative to the dollar. But while that movement has gained a sense of urgency due to shifting trade patterns and geopolitical realignments following President Trump's return to the White House, African advocates for payment alternatives are making their case based on costs. 'Our goal, contrary to what people might think, is not de-dollarisation,' said Mike Ogbalu, chief executive of the Pan-African Payments and Settlements System, which allows parties to transact directly in local currencies, bypassing the dollar. 'If you look at African economies, you'll find that they struggle with availability for third-party global currencies to settle transactions,' he said. Africa's commercial banks typically rely on overseas counterparts, through so-called correspondent banking relationships, to facilitate settlements of international payments. That includes payments between African neighbours. That adds significantly to transaction costs that, along with other factors like poor transport infrastructure, have made trade in Africa 50 per cent more expensive than the global average, according to the UN Trade and Development agency. It is also among the reasons so much of Africa's trade — 84 per cent, according to a report by Mauritius-based MCB Group — is with external partners rather than between African nations. 'The existing financial network that is largely dollar-based has essentially become less effective for Africa, and costlier,' said Daniel McDowell, a professor at Syracuse University in New York specialising in international finance. A man counts Nigerian naira notes in a market place as people struggle with the economic hardship and cashflow problems ahead of Nigeria's Presidential elections, in Yola, Nigeria, February 22, 2023. — Reuters pic Homegrown systems According to data compiled by PAPSS, under the existing system of correspondent banks, a US$200 million (RM851 million) trade between two parties in different African countries is estimated to cost 10 per cent to 30 per cent of the value of the deal. The shift to homegrown payments systems could cut the cost of that transaction to just 1 per cent. Systems like PAPSS allow a business in one country, Zambia for example, to pay for goods from another like Kenya, with both buyer and seller receiving payment in their respective currencies rather than converting them into dollars to complete the transaction. Using currencies like the Nigerian naira, Ghanaian cedi or South Africa's rand for intra-Africa trade payments could save the continent US$5 billion a year in hard currency, Ogbalu told Reuters. Launched in January 2022 with just 10 participating commercial banks, PAPSS is today operational in 15 countries including Zambia, Malawi, Kenya and Tunisia, and now has 150 commercial banks in its network. 'We have also seen very significant growth in our transactions,' Ogbalu said, without providing usage data. The International Finance Corporation, the World Bank's private sector lending arm, has, meanwhile, started issuing loans to African businesses in local currencies. It views the switch as imperative for their growth, relieving them from the currency risks of borrowing in dollars, said Ethiopis Tafara, IFC's vice-president for Africa. 'If they are not generating hard currency, a hard-currency loan imposes a burden that makes it difficult for them to succeed,' he said. Africa's push for local currency payments systems is finally making concrete gains, bringing the promise of less costly trade to a continent long hobbled by resource-sapping dollar transactions. — Picture By Choo Choy May Geopolitics and the Trump factor Africa's campaign to boost regional payments systems has found a platform at the Group of 20 major economies, with South Africa leading the charge as holder of the G20's rotating presidency. It held at least one session on boosting regional payments systems when South Africa hosted a meeting of G20 finance ministers and central bank governors. And South Africa wants it to follow up the talk with concrete actions. The next meeting of G20 finance officials is scheduled for mid-July. 'Some of the most expensive corridors for cross-border payments are actually found on the African continent,' Lesetja Kganyago, South Africa's central bank governor, told Reuters during a G20 meeting in Cape Town in February. 'For us to function as a continent, it's important that we start trading and settling in our own currencies.' Talk of moving away from the dollar — either for trade or as a reserve currency — has drawn aggressive reactions from President Trump, however. After Brics — a grouping of nations including Russia, China, India and Brazil along with Africans like South Africa, Egypt and Ethiopia — weighed reducing dollar dependence and creating a common currency, Trump responded with threats of 100 per cent tariffs. 'There is no chance that Brics will replace the US Dollar in International Trade, or anywhere else, and any Country that tries should say hello to Tariffs, and goodbye to America!,' he wrote on Truth Social in January. In the months since, Trump has demonstrated his willingness to use tariffs to pressure and punish allies and foes alike, a strategy that has upended global trade and geopolitics. No matter its intentions in moving to more local currency transactions, Syracuse University's McDowell said Africa will struggle to distance itself from more politically motivated de-dollarisation efforts, like those led by China and Russia. 'The perception is likely to be that this is about geopolitics,' he said. — Reuters
Yahoo
17 hours ago
- Business
- Yahoo
Analysis-Under shadow of Trump warning, Africa pioneers non-dollar payments systems
By Duncan Miriri NAIROBI (Reuters) -Africa's push for local currency payments systems - once little more than an aspiration - is finally making concrete gains, bringing the promise of less costly trade to a continent long hobbled by resource-sapping dollar transactions. But efforts to move away from the dollar face strong opposition and the threat of retaliation from U.S. President Donald Trump, who is determined to preserve it as the dominant currency for global trade. The move by Africa to create payments systems that do not rely on the greenback mirrors a push by China to develop financial systems independent of Western institutions. Countries like Russia, which face economic sanctions, are also keen for an alternative to the dollar. But while that movement has gained a sense of urgency due to shifting trade patterns and geopolitical realignments following President Trump's return to the White House, African advocates for payment alternatives are making their case based on costs. "Our goal, contrary to what people might think, is not de-dollarisation," said Mike Ogbalu, chief executive of the Pan-African Payments and Settlements System, which allows parties to transact directly in local currencies, bypassing the dollar. "If you look at African economies, you'll find that they struggle with availability for third-party global currencies to settle transactions," he said. Africa's commercial banks typically rely on overseas counterparts, through so-called correspondent banking relationships, to facilitate settlements of international payments. That includes payments between African neighbours. That adds significantly to transaction costs that, along with other factors like poor transport infrastructure, have made trade in Africa 50% more expensive than the global average, according to the UN Trade and Development agency. It is also among the reasons so much of Africa's trade - 84%, according to a report by Mauritius-based MCB Group - is with external partners rather than between African nations. "The existing financial network that is largely dollar-based has essentially become less effective for Africa, and costlier," said Daniel McDowell, a professor at Syracuse University in New York specialising in international finance. HOMEGROWN SYSTEMS According to data compiled by PAPSS, under the existing system of correspondent banks, a $200 million trade between two parties in different African countries is estimated to cost 10% to 30% of the value of the deal. The shift to homegrown payments systems could cut the cost of that transaction to just 1%. Systems like PAPSS allow a business in one country, Zambia for example, to pay for goods from another like Kenya, with both buyer and seller receiving payment in their respective currencies rather than converting them into dollars to complete the transaction. Using currencies like the Nigerian naira, Ghanaian cedi or South Africa's rand for intra-Africa trade payments could save the continent $5 billion a year in hard currency, Ogbalu told Reuters. Launched in January 2022 with just 10 participating commercial banks, PAPSS is today operational in 15 countries including Zambia, Malawi, Kenya and Tunisia, and now has 150 commercial banks in its network. "We have also seen very significant growth in our transactions," Ogbalu said, without providing usage data. The International Finance Corporation, the World Bank's private sector lending arm, has, meanwhile, started issuing loans to African businesses in local currencies. It views the switch as imperative for their growth, relieving them from the currency risks of borrowing in dollars, said Ethiopis Tafara, IFC's vice-president for Africa. "If they are not generating hard currency, a hard-currency loan imposes a burden that makes it difficult for them to succeed," he said. GEOPOLITICS AND THE TRUMP FACTOR Africa's campaign to boost regional payments systems has found a platform at the Group of 20 major economies, with South Africa leading the charge as holder of the G20's rotating presidency. It held at least one session on boosting regional payments systems when South Africa hosted a meeting of G20 finance ministers and central bank governors. And South Africa wants it to follow up the talk with concrete actions. The next meeting of G20 finance officials is scheduled for mid-July. "Some of the most expensive corridors for cross-border payments are actually found on the African continent," Lesetja Kganyago, South Africa's central bank governor, told Reuters during a G20 meeting in Cape Town in February. "For us to function as a continent, it's important that we start trading and settling in our own currencies." Talk of moving away from the dollar - either for trade or as a reserve currency - has drawn aggressive reactions from President Trump, however. After BRICS - a grouping of nations including Russia, China, India and Brazil along with Africans like South Africa, Egypt and Ethiopia - weighed reducing dollar dependence and creating a common currency, Trump responded with threats of 100% tariffs. "There is no chance that BRICS will replace the U.S. Dollar in International Trade, or anywhere else, and any Country that tries should say hello to Tariffs, and goodbye to America!," he wrote on Truth Social in January. In the months since, Trump has demonstrated his willingness to use tariffs to pressure and punish allies and foes alike, a strategy that has upended global trade and geopolitics. No matter its intentions in moving to more local currency transactions, Syracuse University's McDowell said Africa will struggle to distance itself from more politically motivated de-dollarisation efforts, like those led by China and Russia. "The perception is likely to be that this is about geopolitics," he said. 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Reuters
17 hours ago
- Business
- Reuters
Under shadow of Trump warning, Africa pioneers non-dollar payments systems
NAIROBI, June 20 (Reuters) - Africa's push for local currency payments systems - once little more than an aspiration - is finally making concrete gains, bringing the promise of less costly trade to a continent long hobbled by resource-sapping dollar transactions. But efforts to move away from the dollar face strong opposition and the threat of retaliation from U.S. President Donald Trump, who is determined to preserve it as the dominant currency for global trade. The move by Africa to create payments systems that do not rely on the greenback mirrors a push by China to develop financial systems independent of Western institutions. Countries like Russia, which face economic sanctions, are also keen for an alternative to the dollar. But while that movement has gained a sense of urgency due to shifting trade patterns and geopolitical realignments following President Trump's return to the White House, African advocates for payment alternatives are making their case based on costs. "Our goal, contrary to what people might think, is not de-dollarisation," said Mike Ogbalu, chief executive of the Pan-African Payments and Settlements System, which allows parties to transact directly in local currencies, bypassing the dollar. "If you look at African economies, you'll find that they struggle with availability for third-party global currencies to settle transactions," he said. Africa's commercial banks typically rely on overseas counterparts, through so-called correspondent banking relationships, to facilitate settlements of international payments. That includes payments between African neighbours. That adds significantly to transaction costs that, along with other factors like poor transport infrastructure, have made trade in Africa 50% more expensive than the global average, according to the UN Trade and Development agency. It is also among the reasons so much of Africa's trade - 84%, according to a report by Mauritius-based MCB Group - is with external partners rather than between African nations. "The existing financial network that is largely dollar-based has essentially become less effective for Africa, and costlier," said Daniel McDowell, a professor at Syracuse University in New York specialising in international finance. According to data compiled by PAPSS, under the existing system of correspondent banks, a $200 million trade between two parties in different African countries is estimated to cost 10% to 30% of the value of the deal. The shift to homegrown payments systems could cut the cost of that transaction to just 1%. Systems like PAPSS allow a business in one country, Zambia for example, to pay for goods from another like Kenya, with both buyer and seller receiving payment in their respective currencies rather than converting them into dollars to complete the transaction. Using currencies like the Nigerian naira, Ghanaian cedi or South Africa's rand for intra-Africa trade payments could save the continent $5 billion a year in hard currency, Ogbalu told Reuters. Launched in January 2022 with just 10 participating commercial banks, PAPSS is today operational in 15 countries including Zambia, Malawi, Kenya and Tunisia, and now has 150 commercial banks in its network. "We have also seen very significant growth in our transactions," Ogbalu said, without providing usage data. The International Finance Corporation, the World Bank's private sector lending arm, has, meanwhile, started issuing loans to African businesses in local currencies. It views the switch as imperative for their growth, relieving them from the currency risks of borrowing in dollars, said Ethiopis Tafara, IFC's vice-president for Africa. "If they are not generating hard currency, a hard-currency loan imposes a burden that makes it difficult for them to succeed," he said. Africa's campaign to boost regional payments systems has found a platform at the Group of 20 major economies, with South Africa leading the charge as holder of the G20's rotating presidency. It held at least one session on boosting regional payments systems when South Africa hosted a meeting of G20 finance ministers and central bank governors. And South Africa wants it to follow up the talk with concrete actions. The next meeting of G20 finance officials is scheduled for mid-July. "Some of the most expensive corridors for cross-border payments are actually found on the African continent," Lesetja Kganyago, South Africa's central bank governor, told Reuters during a G20 meeting in Cape Town in February. "For us to function as a continent, it's important that we start trading and settling in our own currencies." Talk of moving away from the dollar - either for trade or as a reserve currency - has drawn aggressive reactions from President Trump, however. After BRICS - a grouping of nations including Russia, China, India and Brazil along with Africans like South Africa, Egypt and Ethiopia - weighed reducing dollar dependence and creating a common currency, Trump responded with threats of 100% tariffs. "There is no chance that BRICS will replace the U.S. Dollar in International Trade, or anywhere else, and any Country that tries should say hello to Tariffs, and goodbye to America!," he wrote on Truth Social in January. In the months since, Trump has demonstrated his willingness to use tariffs to pressure and punish allies and foes alike, a strategy that has upended global trade and geopolitics. No matter its intentions in moving to more local currency transactions, Syracuse University's McDowell said Africa will struggle to distance itself from more politically motivated de-dollarisation efforts, like those led by China and Russia. "The perception is likely to be that this is about geopolitics," he said.
Zawya
10-06-2025
- Business
- Zawya
US dollar weakness makes EM local debt great again: IFR
Local currency emerging market bonds are delivering huge gains this year thanks to a weakening US dollar and improving fundamentals in developing countries. By the close of June 3, EM local debt had delivered a total return of 9.69% year to date, according to the JP Morgan EM local GBI Index – far surpassing any high-yielding fixed-income asset class, including EM hard currency debt. That compares to a significant underperformance of EM local debt between 2010 and 2024 when average annualised returns were just 1%, according to Neuberger Berman. 'It's an interesting situation,' said Vera Kartseva, portfolio manager and strategist at Neuberger Berman. 'Usually, local currency bonds are seen as the riskiest asset class correlating with equities. But right now, we see an inverse correlation because of the change in the dynamic of the dollar.' In the past three years, the US dollar has appreciated, making it a difficult environment for EM local debt and causing outflows in the asset class. 'But now, we have an overvaluation of the dollar with a catalyst for weakness, emanating from US policy, making it a favourable environment for local EM bonds,' said Kartseva. Performance of EM local debt is often driven by the US dollar, explaining up to 70% of the performance of the asset class, according to Kartseva. 'The overall dollar weakness plays a big role in global portfolios,' she said, adding that Neuberger Berman is 'preferring local to hard EM debt' in its portfolios. Other EM asset managers are also adding to their local debt positions. 'We've been adding to our exposure to EM currencies since the uncertainty on trade and the U-turns from the White House,' said Alexis de Mones, portfolio manager at Ashmore. 'There is a radical change in funding conditions for EM sovereigns and an increasing interest for local currency products.' Strong fundamentals It is not just a weaker US dollar but strong fundamentals in emerging and frontier markets such as lower oil prices, which will help boost growth in these economies. 'While the weaker dollar is certainly helping, we're seeing contributions from bond price appreciation in many countries, as the market begins to factor in lower oil prices and the implications of stronger EMFX on central banks' reaction functions,' said Joseph Cuthbertson, EM sovereign research analyst at PineBridge Investments. Frontier markets are also benefiting from increased demand. The likes of Argentina, Egypt and Nigeria have attracted 'significant inflows' in 2025, according to Raoul Luttik, senior portfolio manager at Neuberger Berman. 'The opportunity set in EM frontier local has increased as fundamentals across several countries have improved, and we're seeing credible reform efforts in Nigeria, as well as disinflation and attractive currency valuations and carry in Egypt,' said Cuthbertson. Meanwhile, Argentina has pushed through deregulation laws and reduced its fiscal deficit. As well as the Egyptian pound and Nigerian naira, PineBridge is keen on the Uzbek som and South African rand 'where we think any upcoming changes to lower the inflation target would be positive for the currency", said Cuthbertson. Uzbekistan particularly stands out 'given reform momentum and improving credit fundamentals', he said. Less correlated Frontier markets are not typically included in benchmarks or ETFs, meaning they are less correlated to global macroeconomic volatility but rather respond to each country's own macroeconomic changes. 'In the frontier space, we look for a combination of a credible path for fiscal and monetary policies, combined with an undervalued exchange rate and attractive carry,' said Cuthbertson. 'We pay close attention to the amount of offshore positioning in each domestic market, looking for underowned markets and opportunities.' The taper tantrum of 2013 – when Treasury yields surged after the Federal Reserve announced it would start to taper quantitative easing – was the last time there was a direct correlation between FX and interest rate volatility in EM, according to de Mones. 'Since then, any selloff in global core bonds, including Treasuries, has not led to a more-than-proportional selloff in EM bonds,' he said. 'Many EM countries have been doing well from a fundamental point of view since the taper tantrum years,' said Luttik, referring to the reduction in external imbalances and tighter monetary policies to bring inflation back to target. 'Attractive valuations and low foreign participation add to the favourable outlook for local bonds,' he said. Can the outperformance of local EM bonds continue? 'It's early days,' said Kartseva. 'Flow-wise we still have year-to-date outflows in the asset class. But we have started seeing inflows in the past couple of weeks [and] this trend has all the ingredients to continue.' The fact the local GBI EM index has become more skewed towards Asia in recent years following the inclusion of India and China, and as the weight of more volatile countries like Brazil, South Africa and Turkey has shrunk, makes the index's 'risk/return profile more stable', said Luttik.
Zawya
29-05-2025
- Business
- Zawya
Global government issuance of US dollar debt tumbling in 2025, data shows
Governments in Asia and Europe are raising far less debt in U.S. dollars than usual, preferring to issue at home as they avoid exposure to rising U.S. yields, currency volatility and broader concerns about U.S. government finances. According to Dealogic data, issuance of dollar bonds by non-U.S. sovereigns dropped 19% to $86.2 billion in the first five months of this year compared with the same period last year, marking the first decline in three years. The January-May dollar bond issuance by the governments of Canada and Saudi Arabia fell 31% and 29% to $10.9 billion and $11.9 billion, respectively, while issuance by Israel and Poland declined 37% and 31% to $4.9 billion and $5.4 billion. At the same time, Dealogic data showed global sovereigns' local currency bond issuance had climbed to a five-year high of $326 billion so far this year. This drop in dollar bond issuance comes at a time when global investors are pulling back from U.S. assets, partly in response to tariffs and as they question U.S. financial dominance and safety. Johnny Chen, portfolio manager at William Blair's emerging markets debt team, said the rise in local currency issuance is largely driven by falling domestic interest rates as inflationary pressures ebb, noting that India, Indonesia and Thailand have all cut their benchmark interest rates this year. "In India's case, the local currency debt market has also matured further with the inclusion of Indian local currency debt in global bond indices. This development has likely expanded the investor base, prompting more local currency issuance in 2025," he said. Brazil is considering issuing its first sovereign bonds in yuan, two government sources said, after President Luiz Inacio Lula da Silva's visit to Beijing concluded with a wave of Chinese investment announcements and a currency swap agreement. Brazil's sovereign U.S. dollar bond issuance has dropped 44% to $2.4 billion this year, data showed. Saudi Arabia raised 2.25 billion euros ($2.36 billion) through a euro-denominated bond sale, including its first tranche of so-called green bonds, as part of its global medium-term note program, aligning with its strategy to diversify away from dollar-linked financing. "The challenge with the onshore local currency is that those issuances tend to be much smaller, they're less liquid," said Kenneth Orchard, head of international fixed income at T. Rowe Price, based in London. "But we think over time there are going to be more international investors in those markets." (Reporting By Patturaja Murugaboopathy in Bengaluru and Jiaxing Li in Hong Kong; Additional reporting by Gaurav Dogra in Bengaluru; Editing by Hugh Lawson)
