US Dollar Losing Dominance as a Means for Settling Transactions in Africa

The dominance of the United States dollar as a settlement currency in Africa is being challenged by emerging payment methods in financial technology and by native African fiat currencies. In the four years to 2017, fewer people in the continent of 1.2 billion transacted via the US dollar than they did with their local currencies or mobile money, and perhaps cryptocurrency.
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Digital Transactions Rise As US Dollar Slowly Loses Its Hegemony
At one time gold was the world’s most preferred currency before it was replaced by paper money. After World War II, the United States dollar became the backbone of the world’s reserve currency system due to its strength and stability. But that is beginning to change.
According to a new report by SWIFT, the USD is losing its hegemony as an inter-continental, cross-border settlement currency in Africa. The use of the US dollar has dropped as a share of payments from Africa from 50% in 2013 to 45.1% in 2017, it says.
Africa’s currency usage for cross-border commercial payments, 2017
More people are switching to local currencies, and some others to mobile money, for cross-border payments. Payments in the West African franc – used by 8 countries – increased from 4.4% in 2013 to 7.3% in 2017 while transactions in the South African rand – used mostly in Southern Africa – rose to 7.2% from 6.3%.
The report, which maps commercial payment flows against financial flows in Africa, highlighted that since 2014, the percentage of Sub-Saharan Africans with traditional financial accounts has not changed.
Africa’s currency usage for cross-border commercial payments, 2013
But the percentage of mobile money users has doubled, to 21 percent. This is shown by an increase in financial payments made through mobile money from 5.5% in 2013 to 6.4% in 2017.
SWIFT, which connects 11,500 financial companies in 200 countries, forecast that financial technology “will play an increasingly important role in defining Africa’s financial landscape.”
“While the US dollar still dominates, it is releasing its hold,” said SWIFT in its latest report titled “Africa Payments: Insights Into African Transaction Flow.”
About about 20% (16.7% four years ago) of “all cross-border commercial payments were credited to an African beneficiary,” indicating “that more goods and services are being bought and sold within Africa.”
Intra-African clearing of payments has also increased, from 10.2% in 2013 to 12.3% in 2017, which shows that an “increasing number of payments are being routed through Africa instead of via a clearing bank outside of Africa.”
Cryptocurrency ‘Goldfield’
Digital payments
It is difficult to work out how cross-border payments are going to play out in Africa in future. But the trajectory points towards an escalation in mobile-based settlements.
SWIFT data shows that about 6.4% of all payments within, or from Africa, were done by means other than any form of fiat currency. This includes peer-to-peer digital payments over the phone that may expand to cover cryptocurrency, which is not necessarily captured in mainstream data.
But more than a dozen African countries have plugged into cryptocurrency in

Post written by our friend Jeffrey Gogo and Syndicated from Bitcoin.com
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