Ethiopia’s central bank has joined the Pan-African Payment and Settlement System (PAPSS), a platform that lets businesses across the continent pay each other in their own currencies, bringing one of Africa’s largest economies into a network that now spans more than 15 countries and over 150 commercial banks.
PAPSS announced the move on Thursday, Reuters reported via CNBC Africa, describing it as a step towards Ethiopia’s fuller integration into Africa’s financial and payments system.
What happened
By joining PAPSS, the National Bank of Ethiopia opens the door for Ethiopian banks and businesses to settle cross-border transactions with other African countries directly in local currencies. That removes the need to route payments through the US dollar and through foreign correspondent banks, which has made intra-African trade slower and more expensive.
Central bank governor Eyob Tekalign said in a statement that joining the network “represents an important step” in efforts to modernise Ethiopia’s financial system and strengthen its ties with the rest of the continent.
PAPSS was launched in January 2022 with 10 commercial banks. It now operates in more than 15 countries, including Nigeria, Kenya, Zambia, Malawi and Tunisia. South Africa, the continent’s most industrialised economy, remains outside the network.
Why it matters
Ethiopia’s entry is significant because of the size of its economy and population. Businesses that find it hard to obtain dollars to pay suppliers in other African countries could, in principle, use the birr instead, with PAPSS handling the conversion and settlement.
The system is built to support the African Continental Free Trade Area (AfCFTA), which aims to boost trade among African countries. One of the biggest practical barriers to that goal has been the cost and difficulty of moving money across borders. When payments between neighbouring African countries have to pass through correspondent banks abroad, each step adds fees and delays.
Radarr has examined this problem before, noting that Africa invented mobile money but still struggles to send it across its own borders. Each new central bank that joins PAPSS widens the number of trade corridors where local currency settlement is possible.
For Nigerian exporters and banks, Ethiopia’s membership could create a new channel for trade with East Africa. Nigeria is already part of the network, so in principle a Nigerian company selling goods to an Ethiopian buyer could be paid in naira while the buyer pays in birr.
The timing is also notable. Many African currencies are under pressure from a strong dollar and high energy import bills linked to the conflict in the Middle East. Systems that reduce reliance on the dollar for regional trade are likely to attract more interest from policymakers looking to protect scarce foreign reserves.
What to watch
The real test will be usage. Joining PAPSS is a first step, but its impact will depend on how many Ethiopian commercial banks connect to the platform, how quickly they offer it to customers and how much trade actually flows through it.
Investors and traders will also watch whether larger economies, particularly South Africa, eventually join. Without the continent’s most developed financial market, PAPSS will cover only part of Africa’s trade, limiting how far it can reduce the role of the dollar in regional commerce.
