Renowned SA-born political economist Ann Pettifor says it is time Africa takes steps to establish an African Payments Union (APU) as a first step for the continent to rid itself of the hegemony of the dollar.
Pettifor is the director of PRIME (Policy Research in Macroeconomics), a network of economists that promote John Maynard Keynes’ monetary theory and policies and that focus on the role of the finance sector in the economy.
Based in the UK, Pettifor is perhaps best known for predicting the 2008 global financial crisis and leading the charge on the cancellation of more than $100bn of debt owed by the world’s poorest countries in the early 2000s.
The crux of her APU argument is that the realities of the global financial system make it near impossible for African governments to deliver employment and growth amid social and political instability as well as the need for financing to transition away from fossil fuels.
She proposes that each participating African country open an account with the clearing union, much as a commercial bank may have with a central bank.
In terms of the proposal each account would have an initial balance of zero, and the “currency” used by the APU would be analogous to commercial bank “reserves” held by central banks, meaning resources could only be used within the clearing union to balance the system.
Pettifor said the proposed APU would include the option, or potentially even the obligation, for countries to adjust exchange rates between national currencies.
To participate in the union, Pettifor said deficit countries would devalue their currencies and surplus economies would revalue theirs.
“A distinctive feature of the proposed payments union is that it would treat both debtors and creditors symmetrically. The debtor pays interest on its overdraft, but the creditor (exporter) does not benefit from its surplus,” she argues in an essay published by the Carnegie Endowment for International Peace.
“Instead, the creditor country is disciplined and pays a commission on its positive balances, as an incentive to lower its surplus by buying from debtor countries. The commission charged is justified by the fact that creditors have deposited nothing in the ‘bank’ or union, and yet benefit from its services, just like debtors. Moreover, these symmetrical costs constitute an incentive for creditors and debtors to restore balance in their external accounts.
“The strength of the payments union model is that it allows the debtor country (importer) to buy what they could not have afforded and allows the exporter (creditor) to sell what otherwise they would have found no market for.”
Pettifor’s prediction of the global financial crisis was articulated in her 2006 book, The Coming First World Debt Crisis.
Before that, she played a leading role in Jubilee 2000, an international coalition movement in more than 40 countries that called for cancellation of developing countries’ debt by 2000 — a movement that was supported by the Church of England.
The movement eventually led to the cancellation of more than $100bn of debt owed by 35 of the poorest countries.
Europe in the 1950s, in response to World War 2, established the European Payments Union, which facilitated the convertibility of European currencies by setting exchange rates that were deemed to reflect the reality of each country’s economic situation.
Pettifor said such a clearing system would enable African governments to finance transactions across the continent, without building up imbalances.
“When crises occur, or the Fed raises rates, the US dollar strengthens, and African currencies generally weaken. The cost of servicing Africa’s foreign debt rises, as do the prices of essential imported commodities such as grains, medicines and energy, purchased with US dollars. The rising cost of essential, imported foreign goods fuels inflation,” she said.
“When the US dollar weakens, the reverse happens. African currencies strengthen, the value of exports rise and the cost of foreign debt service falls, as does inflation. When the Fed and other Western central banks ease policy, liquidity becomes more available. These conditions are not conducive to stability or development and have resulted in the worst-yet African debt crisis.
“Though there are ongoing international debates about changing the global financial system, Africa must not wait for them to be settled. As an interim step, to escape their predicament and gain more control over their economic fortunes, African governments should form a continent-wide payments union, modelled on the European Payments Union of the early post-World War 2 era.”
According to data from UN Trade & Development, in 2022 public debt in Africa reached $1.8-trillion, with the continent’s debt having increased by 183% since 2010.
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