Africa is building regional payment systems that could make cross-border money transfers faster and cheaper, but its fragmented currencies remain a problem that payment rails alone cannot solve.
The continent has more than 40 currencies, many of which are not directly convertible, forcing banks and payment providers to rely on settlement banks, correspondent banking and pre-funded accounts to move money between markets.
Cross-border payments already work despite Africa’s currency fragmentation. A payment can appear instant to the sender while banks and payment providers handle currency conversion and settlement in the background. When currencies cannot be exchanged directly, those extra steps make transactions more expensive.
Sabine Mensah, deputy chief executive officer of AfricaNenda, a pan-African organisation working to expand instant and interoperable payment systems, says the answer is not necessarily a single African currency. Regional payment systems are already emerging across the East African Community (EAC), West Africa, Central Africa and the Southern African Development Community (SADC). Connecting these systems could eventually extend interoperable payments to more than 60% of African countries.
But payment infrastructure is only part of the problem. Mensah says regulators also need to harmonise rules around payments, licencing and settlement if Africa wants to reduce its reliance on hard currencies such as the dollar and make intra-African trade cheaper.
This interview has been edited for clarity and length.
Can interoperability succeed if African currencies remain fragmented?
The fact that countries have different currencies does not stop cross-border transactions from happening. Take Kenya and Tanzania. Someone in Kenya can send money to someone in Tanzania even though the Kenyan shilling and Tanzanian shilling are different currencies. Cross-border transactions are already happening across Africa.