Keeping Pace with China’s Digital Blitzkrieg

The global financial order flinched days ago when China’s Cross-Border Interbank Payment System (CIPS 2.0), supercharged by the digital Yuan processed a $16.5 million payment from Shenzhen to Kuala Lumpur in just 7.2 seconds. Launched across 16 ASEAN and Middle East countries, it took a blink for the system to do what takes the SWIFT system three days with the global financial community now facing a digital current revolution. At the base of the new financial dawn lies more that speed promising a total re-imagination of cross-border money flows that are cheaper, smarter, and nearly invulnerable to fraud and politics of the old-world order.

Meanwhile in Africa, a revolution has been quietly unfolding, albeit slowly. The Pan-African Payment and Settlement System (PAPSS) — developed under the African Continental Free Trade Area (AfCFTA) framework — seeks to liberate the continent from dollar dependency by enabling real-time payments between African countries in local currencies. However, looking at the Chinese initiative that is likely to reshape the global finance, Africa must be concerned whether PAPSS can keep up with the velocity and sophistication of the new age or if it will risk irrelevance as it finds its grounding.

A New Currency War Has Began

The CIPS 2.0 has been described as a lightening strike that is not merely about speed boosting of three vital advantages over the traditional dollar system. It promises to annihilate transaction costs on cross-border transfers costing only 12 cents for a SWIFT $100,000 transaction that costs $4,950 and takes 72-hours. Secondly, it brings significant technological supremacy allowing for offline payments and smart contracts that will certainly automate trust and eliminate fraud-prone paperwork. Thirdly, through the use of blockchain capabilities, the system revolutionizes security with ease of tracing every cent while artificial capabilities can intercept laundering attempts within milliseconds.

In no way can these be considered as marginal improvements as they are significant foundational shifts. The system is undoubtedly turning money movement into a fluid and frictionless affair as sending a text message. This underscores the willingness of 16 ASEAN and Gulf countries to pivot towards the digital yuan. However, it remains to be seen how Western financial institutions are likely to respond.

PAPSS – Africa’s Own Answer to Dollar Dependency

PAPSS, the Afreximbank brainchild was build with a bold vision to connect 55 African states through a single real-time payment systems while reducing the need for intermediary currencies like the dollar. This represents a rare African-led innovation around financial infrastructure launched in 2022 with the support of the AfCFTA Secretariat offering immediate settlements, lower costs, and a crucial African ownership of financial arteries.

Early pilots have been promising with Kenyan banks, including Kenya Commercial Bank, Ecobank, and Standard Chartered Bank joining the ranks to popularize the initiative. Transactions in about 28 banks across the continent can now settle almost instantly with a domination of shillings, Naira, and Cedis among other currencies. PAPSS is thus a suitable lubricant for the $3.4 trillion market envisioned by the AfCFTA fueling the much needed intra-African trade emergence which has lagged behind Europe and Asia at only 15%.

“While seeking to escape the dependency on the dollar, Africa could find itself trading one foreign master for another.”

While big, ambition alone is, however, not enough. Considering a world where China’s CIPS 2.0 digital yuan leverages on blockchain, smart contracts, and AI for the preemption of crime and automated trust, the PAPSS system lags behind. PAPSS still relies largely on traditional centralized databases, old-school risk controls, and manual oversight.

African for Opportunity or Obsolescence?

“The questions on the minds of many PAPSS enthusiasts across the African continent is on whether PAPSS will evolve rapidly enough to compete or whether it will be bypassed all together.”

Positively, the PAPSS enjoys a head start in understanding the African market realities which is desirable. African deals with highly fragment currencies, a huge underbanked population, and nascent regulatory frameworks that could prove difficult for outsiders. Thus, with investments and a shared vision, the system could leapfrog into advanced technology by integrating from blockchain-based ledge, AI fraud detection, and smart contract capabilities borrowing from China’s first over advantage. In there also lies the posibility of building a uniquely Afro-centric digital currency ecosystem tailored for the small and medium enterprises, informal traders, and local supply chains.

Visitors line up to buy discounted coffees using digital yuan in Beijing on Sept. 7, 2021. Bloomberg via Getty Images file

On the risk side, technologically, the digital Yuan framework is a stark warning for Africa’s PAPSS approach. If it continuous to lag, external actors — including China with its digital yuan — could insert themselves into African trade networks. A future where African imports such as tea, cocoa, and cobalt are not settling through the much hyped PAPSS approach in Congolese Franc, Kenya Shilling, or Ghanaian Cedi but through Beijing’s blockchain priced in digital Yuan is undesirable. While seeking to escape the dependency on the dollar, Africa could find itself trading one foreign master for another.

Moreover, technological gaps in the local system could bread additional vulnerabilities. Failing to harden the system with the latest cybersecurity and blockchain protections could make it attractive to fraudsters, sanction evasions, and geopolitical interferences effectively undermining trust Africans desperately need it.

Strategic Questions for AfCFTA, African Leaders

African systems must be willing to confront the hard-strategic choices that a wait- and soon. There is a need to consider where the PAPSS should aggressively integrate blockchain and AI technologies to future proof itself while enhancing trust. Second, there is a need to consider the potential for partnering technologically with China and Europe among other players or seek to build an independent digital finance alliance with like-minded individual nations. Further, it is time to consider how the PAPSS system can start being accessible to Africa’s vast informal sector in addition to the big banks to ensure financial inclusion and accelerated adoption. Lastly, it is crucial that African ensure that the sovereignty of her financial data remains Africa-owned in a world where data is the new oil. They will determine whether AfCFTA becomes a continental renaissance or just another dusty treaty celebrated more in speeches than in trade flows.

The Race is Already On

The financial infrastructure revolution is no longer theoretical as it is already happening live and in 7-second payments and smart-contract-triggered cargo releases. This is the new world where speed is power, trust is programmable, and payment systems are weapons of geopolitical influence that African must take advantage of.

PAPSS must not only keep pace — it must lead. Financial sector players, the AfCFTA leadership, and individual nations must embrace the need for innovation to merge Africa’s youthful dynamism with world-class technology imperatives. Otherwise, the dream of “an Africa trading with itself” may find its financial veins rerouted through systems owned elsewhere. When settlements happen at the speed of thought, and financial loyalty shifts with a swipe, whose rails will Africa’s trade ride on?

These are the writer’s own opinions and do not necessarily reflect the viewpoints of Liberty Sparks. Do you want to publish in this space? Contact our editors at [email protected] for further clarification.