Africa Loses $5 Billion Annually Due to Foreign Currency Trade, Experts Say

Jordan Vega

Jordan Vega

March 16, 2025 · 3 min read
Africa Loses $5 Billion Annually Due to Foreign Currency Trade, Experts Say

Africa is losing a substantial amount of money, approximately $5 billion annually, due to its reliance on foreign currencies in international trade, particularly with the US dollar. This staggering figure was revealed in a recent interview with Dr. Melaku Geboye Desta, Coordinator of the African Trade Policy Centre (ATPC).

This loss is attributed to the continent's historical economic links, post-colonial banking institutions, and global trade patterns that favor Western currencies as primary mediums of exchange. As a result, African states have traded both within the continent and with international partners using foreign currencies, such as the US dollar, euro, and British pound.

However, this system has a considerable negative impact on intra-African trade. It increases transaction costs, delays trade settlements, and exposes African economies to currency rate instability. Furthermore, it requires African firms and governments to keep substantial foreign currency reserves, which are frequently obtained through borrowing or trade surpluses with external partners, putting further strain on economic stability.

Dr. Melaku Geboye Desta emphasized the need for a shift towards local currencies in intra-African trade, citing data from Afreximbank. He stated that removing non-African currencies would save transaction costs involved in the conversion and reconversion process, making trade cheaper, more competitive, and facilitated.

The Pan-African Payment and Settlement System (PAPSS), which incorporates clearing institutions that function without the need for an intermediate currency, was developed as a result of this way of thinking. This system aims to save on transaction costs, facilitate trade, and make it more competitive between African countries.

In recent times, some African countries have begun considering the use of their local currencies to conduct business with non-Western partners such as China and Russia. One such initiative is Russia and Ethiopia's plan to begin trading in their respective currencies, highlighting the growing trend towards local currency adoption in international trade.

The implications of this shift are significant, with the potential to boost intra-African trade, reduce transaction costs, and increase economic stability. As African countries continue to explore alternative currencies and payment systems, the continent may finally begin to reap the benefits of its vast economic potential.

In conclusion, the staggering $5 billion annual loss due to foreign currency trade is a wake-up call for African countries to re-evaluate their trade practices and adopt more sustainable and beneficial alternatives. As the continent continues to grow and develop, it is essential to prioritize local currencies and payment systems that promote economic stability, competitiveness, and cooperation.

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