As global discussions around new currency initiatives gain momentum, questions arise about their potential to reduce trade costs in Africa. Recent proposals, such as the BRICS currency and a Southern African Development Community (SADC) currency, have sparked debate, with many experts casting doubt on their feasibility. Donald MacKay, CEO of XA Global Trade Advisors, offers his critical perspective on these ideas, suggesting that both concepts may be “completely nuts.” Instead, he hints that a more viable solution could lie in the Pan-African Payment and Settlement System (Papss) or even a stable coin for intra-African trade.
Criticism of the BRICS Currency
The BRICS currency, in particular, has drawn significant attention since Russia’s exclusion from the Society for Worldwide Interbank Financial Telecommunication (Swift) following its invasion of Ukraine. This event underscored the central role of the US dollar in global transactions and the challenges many smaller economies face in dealing with the high costs of trading in dollars.
Nicholas Woode-Smith, a critic of the BRICS currency proposal, argues that it’s “a misguided venture doomed to fail.” He further points out that the alliance itself is an awkward grouping of nations with little common ground, let alone a basis for a shared currency.
“A concerted adoption of a BRICS currency would lock South Africa out of trade with some of our biggest and most profitable trade partners; the European Union, United Kingdom, and United States are unlikely to look kindly on such an unnecessary project,” he explains.
MacKay echoes this skepticism, noting that the BRICS nations have diverse economies with conflicting priorities. While the US dollar remains a reliable store of value and widely accepted currency, a BRICS currency would lack the same trust and infrastructure.
SADC Currency: A Non-Starter?
As for the SADC currency idea, MacKay is equally unconvinced. While some SADC currencies are pegged to the South African rand, others are not, leading to wide discrepancies in economic policies.
In particular, MacKay points to Zimbabwe’s erratic monetary policy, where rampant inflation and frequent currency changes undermine stability. “How do we reconcile their central bank strategy with South Africa’s very conservative approach to inflation?” he asks.
Furthermore, intra-SADC trade remains minimal, and investment between SADC countries is nearly non-existent. MacKay emphasizes that even within the European Union, the world’s most integrated economic zone, eight different currencies are still in use. For him, the case for an SADC currency simply does not hold up.
Enter Papss: A Better Solution?
Papss, a cross-border financial market infrastructure enabling payment transactions across Africa in local currencies, presents a more promising alternative, according to MacKay. Designed to reduce transaction costs and streamline trade across the continent, Papss offers an innovative solution to the currency exchange dilemma.
However, MacKay warns that the success of Papss depends on overcoming significant logistical and political hurdles. “The reality of making this work is a lot more difficult than advertised by the politicians,” he notes, but still acknowledges it as “an important step” in the right direction.
Looking ahead, MacKay suggests that a stable coin built on Papss infrastructure could be a viable option for intra-African trade. Stable coins, which are pegged to more stable assets like the US dollar or gold, could reduce currency volatility while maintaining value in cross-border transactions.
A Long Road Ahead
While a Papss stable coin may offer a potential solution, MacKay remains cautious. At some point, African countries will still need to trade outside their bloc, where the real test of any new currency lies. Even if intra-African trade costs are reduced, the global market’s reliance on the US dollar is not likely to shift anytime soon.
In conclusion, MacKay remains skeptical of both the BRICS and SADC currency proposals but holds out hope that innovative solutions like Papss could pave the way for more affordable trade across Africa. “Viva Papss!” he exclaims, signaling his support for the system’s continued development. However, the road to achieving true currency efficiency within Africa remains long and uncertain.
