The African Export-Import Bank (“Afreximbank”) and African Continental Free Trade Agreement (“AfCFTA”) Secretariat has announced the operational roll-out of the Pan-African Payment and Settlement System (“PAPSS” or “the System”) to facilitate cross-border payments in local currencies between African markets.
The PAPSS, which is one of the key operational instruments of the AfCFTA, is a centralised system for processing, clearing, and settling of cross border trade and commerce payments among African countries. The System would replace the current corresponding banking for intra-African trade, especially for large-value cross-border payments. Expectedly, its roll-out and full implementation should herald the introduction of a single currency for the African Free Trade Area and the evolution of an African Central Bank.
Furthermore, PAPSS should facilitate the emergence of new businesses, enable existing businesses scale across the continent faster and potentially increase flow of foreign direct investment (FDI) into the Continent.
How the PAPSS works
The PAPSS operates on a multilateral net settlement basis with Afreximbank acting as the main Settlement Agent in partnership with participating African Central Banks. The System has an instant payment system (PIP™) which supports wholesale and retail real time payments.
PAPSS transactions can only be conducted through a participating Bank or Payment Service Provider (PSP) – collectively referred to as the Participant. A Participant is required to sign-up to the System after completing the on-boarding process and fulfilling all requirements. Also, the Participant would maintain and pre-fund its settlement accounts with the local Central Banks and in PAPSS.
In summary, an importer only needs to issue a payment instruction to his/her participating Bank or PSP (i.e., “Participant”). The Participant would process the payment instruction through the PAPSS clearing system. After the payment instruction is cleared, the exporter receives value for the transaction. While the importer would be debited for the value of the transaction in the local currency, the beneficiary would receive value for the transaction in his/her local currency through a Participant in the Home country. The applicable exchange rates would be available to Participants and communicated to the importer when initiating the payment instruction. The above process should happen instantly or near instantly continue reading...